Build a Relationship as You Build Your Business

Is litigation the solution for a non-performing business partner?

On Behalf of | Apr 19, 2024 | Business Law

Business partnerships are much like a marriage. The partners are legally bound together and generally work towards the same ends. Good business partners often have different but complementary skill sets. When two or more people come together with a shared business vision, their combined skills, creativity, and resources can grow the company beyond what one partner could have accomplished.

This collaboration is often the heartbeat of a startup, with each partner playing a vital role in keeping the business alive and thriving. They divide up the work, share the financial burden, and put their trust in each other to fulfill their parts of the agreement. Every strong business partnership needs a binding partnership agreement as part of its foundation, which also includes such documents as official business licenses, employer identification numbers, business name registration, tax records and other essential paperwork.

When partnerships falter

Sometimes, a business partnership can hit a rough patch. If one partner isn’t keeping up their end of the deal, it can strain both the business and the relationship. This breach of trust isn’t just about hurt feelings; it’s a failure to honor the partnership agreement that outlines each partner’s duties and contributions. When one person doesn’t follow through on their commitments, whether it’s not investing the agreed-upon capital or shirking their workload, it unfairly burdens the other partner(s). This imbalance can stifle the business’s growth and create a toxic work environment.

Contracts set the ground rules

Before racing to the courthouse, it’s essential to review the partnership agreement. It likely lays out steps for conflict resolution, such as mediation or arbitration, before pursuing legal action. If these efforts don’t resolve the issue, or if the non-performing partner continues to neglect their responsibilities, litigation could be the necessary course of action.

The impact of lawsuits

Litigation is said to be a lengthy and costly process. Still, it can provide a clear resolution and financial compensation for the partner carrying the extra weight. Winning a lawsuit can help recoup losses caused by the non-performing partner, allowing the wronged individual to move forward—either by continuing the business without the problematic partner or by starting a new venture. In the end, litigation is a tool for enforcing the partnership agreement and ensuring that each person holds up their end of the partnership agreement or other contract.