Business partnerships fall apart all the time, and most partnerships are prepared for the possibility. When it happens, either the partnership agreement or the company’s operating agreement usually provides the guidelines for a dissolution.
What happens, however, if the business partner flagrantly breaches your agreement in some way, throwing your entire operation into chaos? If your business suffers unnecessary losses because of your business partner’s actions, can they be held financially liable?
Was there a breach of contract or a breach of their fiduciary duty?
Typically, lawsuits can arise when the departing partner either breaches their contract or their fiduciary duty to the company. This can happen in many different ways, including:
- Failure to contribute agreed-upon capital: For example, if a limited liability company (LLC) agreement specifies that members have to contribute a certain amount of capital and the partner fails to deposit their share because they know they plan to leave, that could leave the company without the funds it needs to operate.
- Misappropriation of funds: Fraud and theft are real possibilities, especially if a business partner is having financial trouble of some kind. Any unauthorized or improper use of company funds or assets for their personal gain is a breach of loyalty.
- Conflict of interest: Business partners are supposed to put the business and the partnership ahead of their personal interests. If a business partner engaged in back-door deals for their own profit or directly competed with the company in some way, such as poaching clients or accounts, that could be actionable.
- Violation of nondisclosure clauses: These days, your company’s intellectual property can have more value than anything else your company owns, so you naturally want to protect it. If the departing partner shared proprietary information, like trade secrets, financial data or anything similar, that could deeply hurt your business well into the future.
A good partnership can be a dream come true for any businessperson, but a partnership that suddenly falters due to abandonment can be a nightmare. Partner abandonment can disrupt your business operations and damage your reputation. It can also create uncertainty among your employees, suppliers, financiers and customers. If you believe that your business partner’s actions have caused significant harm to your company, it is wisest to seek legal guidance.