How to Resolve a Business Partnership Dispute

Disputes between co-owners can threaten the whole business. The best outcome is usually reached early, before trust breaks down completely.

Start with the agreement

Your partnership agreement, operating agreement or shareholder agreement may cover:

• Decision-making and voting
• Capital contributions and distributions
• Buy-sell provisions: triggers, valuation and payment terms
• Deadlock procedures
• Mediation or arbitration requirements
• Non-compete and confidentiality obligations

If there is no written agreement, state partnership or LLC law supplies default rules.

Common causes of disputes

• Unequal work or contributions
• Money: distributions, salaries, expenses, missing funds
• Strategy and growth decisions
• One partner competing or taking opportunities
• Exit, retirement or death of a partner

Fiduciary duties

Partners and, in many states, LLC managers owe each other duties of loyalty and care: no self-dealing, no secret profits, and no taking business opportunities for themselves (Cornell LII). Breaches can support claims for damages or other remedies.

Resolution options

1. Negotiation: often with each side's lawyer and accountant.
2. Mediation: a neutral mediator helps the partners reach a deal; it is confidential and often preserves the business (Cornell LII).
3. Buyout: one partner buys the other out, using the agreement's valuation method or an agreed appraisal.
4. Arbitration: if the agreement requires it.
5. Litigation: claims for breach of contract, breach of fiduciary duty, an accounting, or judicial dissolution when the business cannot reasonably continue.

Protect yourself during a dispute

• Get copies of financial records; partners usually have information rights.
• Do not take company funds or property, even if you feel entitled.
• Keep communications professional and in writing.
• Watch personal liability: general partners can be personally liable for partnership debts (Cornell LII).

Can you sue a partnership?

Yes, and partners can sue each other or the business. The right claims depend on the entity type and agreement.

Prevention

Write a detailed agreement at the start with a buy-sell clause and a dispute resolution process. See what to do after forming an LLC.

A business lawyer can evaluate claims and negotiate a buyout.

Sources

1. Cornell Law School LII: Partnership
2. Cornell Law School LII: Fiduciary duty
3. Cornell Law School LII: Mediation