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What are your options if your partner breaches your agreement?

Starting a new business is always a risk, but when you launch with a partner, you may have even more at stake. Working with another entrepreneur – or even several others – means adapting to each others' methods and adjusting to each others' idiosyncrasies. There is always the chance that one partner will take the company in a direction the other partners do not want, and this could result in conflict that places the future of the business in jeopardy.

To protect your New York company from such possibilities, you and your partners drafted and signed an agreement that carefully spelled out the philosophy of the company and the methods for reaching your goals. Your partnership agreement may have separated the essential duties of each partner and established a protocol for handling the income, losses and profits. What do you do now that your partner has breached this contract?

Is legal action warranted?

When creating your contract, you may have foreseen that the day might come when you would dissolve the partnership. If one partner breaches the agreement, your contract may call for this dissolution and the formation of a new partnership with the remaining members. However, this is a delicate matter, and it may involve proving that the partner did, in fact, break the agreement. Otherwise, your partner may have legal cause to sue you for damages.

On the other hand, you may have your own legal action to consider, especially in any of the following cases:

  • Your partner walked away from the business without good cause and in violation of the terms of the contract.
  • Your partner misappropriated assets of the business.
  • Your partner's departure from the business created a liability, such as leaving clients or orders unattended.
  • Your partner refuses to negotiate a settlement or agree to restoring the partnership.

The loss of a partner through breach of contract can be devastating to a business. In the worst situations, it can mean the end of a business and significant financial loss. Like the breach of trust in a marriage, you may feel a sense of betrayal. However, it is important to approach the matter rationally and consider solutions that are reasonable and in the best interests of your business. You may find this is easier to do when you have a legal advocate who is focused on your long-term success.

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