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What to do if your business partner breaches a contract

On Behalf of | Mar 24, 2023 | Business & Commercial Law

You and your business partner likely started your business venture in high spirits. Yet, the stress of being an entrepreneur can lead to arguments and other issues. Not all partnerships are built to last; if your partner fails to fulfill their end of a deal, there are a few options for resolving the matter.

  1. Negotiate a settlement

If the offense is a minor transgression, you may want to restore your relationship while simultaneously receiving compensation for the contract breach. You and your partner may have to compromise to reach an agreement, but opting for this solution will spare you from expensive litigation costs.

On the other hand, if the breach has significantly damaged your business, you could file a lawsuit and then make a settlement offer with your conditions.

  1. Expel your partner

When working with your partner no longer seems viable, you and the other equal partners may choose to remove them from the company. Make sure to review your partnership agreement to see if there is an expulsion clause present.

A well-drafted agreement will define what inappropriate behavior warrants expulsion and will lead you through the proper course of action. Without an expulsion agreement, the partnership must first be dissolved.

  1. File a lawsuit

Serious offenses like embezzlement and fraud may leave you no choice, but to sue for compensatory damages. When the offending partner refuses to negotiate or take accountability, a lawsuit can start the discussion and may be the only option.

  1. Seek liquidated damages

If your partnership agreement contains a liquidated damage clause, you may be able to receive the amount stipulated as compensation. If the court finds the liquidated damages reasonable, it will enforce them. If not, the court can rule that the liquidated losses are invalid and award compensatory damages in their place.

The nature of your partnership, the seriousness of the violation, and the terms of your partnership agreement will influence how you remedy the situation. Without a specific clause, you may not have access to some options. Review your contract and, if necessary, obtain legal advice to ensure you take the appropriate action.