The Most Common Reasons for Lawsuits in Closely Held Companies
Just like with a marriage, no one enters a business partnership expecting it to break down. Unfortunately, despite your best efforts, serious disputes sometimes arise between business partners.
In many cases, you may be able to reach a resolution and move forward with your business. In other cases, more serious reorganization may be necessary.
And in the most serious cases, you may need to dissolve the partnership altogether. Suing a business partner is not a step to be taken lightly. It can be time-consuming and costly and may end up hurting your business.
On the other hand, if your business partner is already damaging your business by their wrongful actions, a lawsuit may become necessary to salvage your business or your own personal interests.
If you are facing a dispute with a business partner, you should consider speaking with an experienced partnership lawyer. An experienced business attorney can advise you of your options and help you protect your business’s interests.
To learn more about the possible steps you can take when faced with a business dispute, review the frequently asked questions below.
What Are the Grounds for Suing a Business Partner?
There are a number of circumstances that might justify a lawsuit against your business partner. For example:
- Your partner breaches a fiduciary duty through self-dealing, competing with the partnership, or otherwise acting contrary to the business’s interests;
- Your partner breaches the partnership agreement, an employment contract, a non-disclosure agreement, or any other contract with you;
- Your partner engages in conduct that could negatively affect your business, such as being charged with a crime, committing fraud, or filing for bankruptcy;
- The partnership becomes unworkable and you want to dissolve it;
- Your partner stole money or property from the business; or
- Your partner violated the company’s intellectual property rights by misusing a copyright, patent, or trademark.
As you can see, all of these grounds involve a common theme: they all affect the health and well-being of your business.
If you are facing one of these situations, a lawsuit may become necessary if you want to continue operating a successful business.
Can I Sue My Business Partner for Negligence?
If your partner acts negligently, it could affect your business in a number of different ways.
For example, your partner may harm the business by negligently performing their duties. This may be a breach of the partnership agreement or a breach of the partner’s fiduciary duty of care.
Another situation that might arise is a business partner exposing the business to liability by acting negligently toward a third party. In that case, the business may be able to sue the partner for indemnity.
For example, if the partner hit a pedestrian while making a delivery in the company van and the pedestrian sued the business, you may be able to sue your partner to recover damages you had to pay.
Can I Sue My Business Partner for Abandonment?
If your partner abandoned the business, you will likely need to take action to expel the partner or dissolve the partnership.
In most cases, the process for dissolution will be governed by your partnership agreement. If the abandonment breached the partnership agreement, you may also be able to recover damages against your partner or take advantage of other remedies outlined in the partnership agreement.
If you don’t have a partnership agreement, dissolution may be governed by Part VI of Michigan’s Uniform Partnership Act.
Are There Alternatives to Litigation?
It is always best to try to settle your business disagreements out of court. Even serious business disagreements do not have to mean the end of a partnership.
However, the longer a legal dispute between partners drags on, the harder it will be to mend fences and work together again as partners.
An attorney can advise you about alternatives to suing your business partner, such as arbitration or mediation. These options can be less costly and will allow you to resolve your dispute more quickly than you could by going to court.
How Do I Sue My Business Partner?
An experienced partnership attorney can advise you on how to sue your business partner.
Partnership disputes can be complex and messy. A partnership lawyer will examine your partnership agreement and any other contracts between you and your partner and also determine what state laws might apply to your claim.
Additionally, your attorney will discuss questions with you like:
- Are there alternatives to a lawsuit that you might want to consider?
- Is your partner open to negotiation?
- What are you hoping to achieve through the lawsuit?
- Do you have strong grounds for suing a business partner?
- What defenses might your partner raise in response to your claims?
- What is your likelihood of success?
Your attorney can then advise you about what strategies are likely to be most successful for your particular circumstances.
What Will I Gain by Suing My Business Partner?
The type of remedies available to you from winning a suit against a business partner will depend on the terms of your partnership agreement and what the partner did wrong.
Possible remedies may include:
- Monetary damages,
- Requiring the partner to perform its obligations,
- Expelling the partner from the partnership, and
- Dissolving the partnership.
Additionally, taking action against a partner who has acted wrongfully can protect the future of your business by preventing the partner from causing further harm.
How Can the Miller Law Firm Help Me?
The Miller Law Firm has been serving businesses in Michigan and around the nation for more than two decades. We have recovered over $3 billion on behalf of our clients, and we want to help you too.
If your business partner is hurting your company, give us a call or contact us online for a free consultation to learn how we can protect your interests.