You form a formal partnership when you agree to do business with others and share profits and losses. Although a partnership agreement is not essential to enforce in written form, it has to be in writing to be enforceable.
If a business partner violates the terms of your partnership agreement, you may pursue various legal remedies.
Expulsion from Company
You cannot eject a partner without dissolving the partnership unless the partnership agreement explicitly addresses expulsion. In two-person partnerships, this will need to create a new partnership agreement and collaborate without the ejected member.
On the other hand, many partnership agreements allow for the dismissal of a partner who has broken the agreement. And the continuing of the partnership without expelled the member.
Expulsions are carried out in good faith, such as in the event of a significant breach of the partnership agreement. In the event of a bad-faith expulsion, the departing partner may be able to sue the partnership for damages.
Therefore, before beginning any expulsion procedure, follow procedures and get legal guidance. Even if the other party were in violation, they would rarely be expelled without any monetary rights.
Liability for Breach
You have the right to sue a partner who violates the partnership agreement, whether or not you have expelled him from the partnership. For example, suppose a partner just walks away from a partnership, and then his behavior is not considered a breach of the partnership agreement.
The breach of contract happens if the contract stipulated a specific length for the partnership and the departing partner walked away earlier than specified. Even in such instances, the departing partner may be exempt from liability if he can demonstrate that he left the partnership. But, he has to give a specific good reason to exempt the contract.
Other breaches, such as misuse of partnership assets, allow non-breaching members the right to sue the breaching partner for compensatory damages. The partnership’s actual damages will be subtracted from the departing partner’s investment stake in the partnership to determine the amount of damages. This may be the best solution, depending on the size of the organization and the severity of the breach.
Seek Liquidated Damages
Some partnership arrangements include liquidated damages clauses that pay a specific amount of losses to any partner damages by the other member’s breach. In partnership litigation proceedings, courts only enforce liquidated damages clauses if they are reasonable in light of actual or projected damages.
For example, a liquidated losses clause that provides for the dissolution of the partnership. And compensation to any partner in an amount less than that partner’s investment stake in the partnership is not enforced by law.
If a court rules that a liquidated losses clause is unenforceable, the court may award compensatory damages to the aggrieved party. The winning party must attempt to have the court’s verdict enforced. This can be challenging.
Settlement Between Parties
A negotiated covenant gives you and your partner the chance to repair your business relationship. In addition, written settlement agreements are usually legally enforceable as other contracts, and they can be enforced in court.
Therefore, you can avoid a costly and time-consuming court battle by compromising your partner to win his consent to a settlement. You might potentially file a lawsuit against him and then offer to resolve terms that are in your best interests.
Settlements are frequently the best option because the court and legal costs escalate quickly. And there is no assurance that you will be granted damages. On the other hand, taking a dispute to court is always risky, which is why mediation is so popular.
The Bottom line
All these mentioned points above can assist you in solving your problem with the law. Hopefully, this information may help you. If you’re still not sure what to do, then you can take advice from professionals.