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3 things people often do when a business partner sues them

On Behalf of | Jun 23, 2023 | Business Litigation |

A business partnership is a long-term relationship in which two or more people cooperate for mutual financial and professional benefit. Partners combine their resources and experience to form functional businesses that either partner might struggle to run on his own.

Partnerships begin in different ways.  Some are a result of careful forethought and planning.  Some are a result of an informal working relationship that the parties desire to formalize.  Often, the parties reduce the terms of their working relationship to a writing.  A valid contract consists of an agreement between the parties to engage in a common undertaking, joint control or right of control, a joint proprietary interest in the subject matter, a right to share in the profits and a duty to share in any losses that are sustained. Business partnerships don’t always continue in a smooth and productive fashion. Sometimes, interpersonal conflicts or poor professional performance eventually results in litigation. What should someone invested in a business do if their partner sues them?

Review their partnership agreement

The first step in responding to any business partnership dispute is to review the agreement between the partners to establish whether a violation has actually occurred. Sometimes, one partner has unreasonable expectations that are not a reflection of the terms that the two agreed on in their written contract. The partner facing a lawsuit may be in a very good position to defend themselves based on the terms of their agreement.

Gather business documentation

Partnership conflicts many times give rise to one partner locking the other out of the business.  This frequently makes it hard for the partner defending the suit to obtain books and records necessary for a defense of the action.  Therefore, those facing a partnership dispute will want to secure personal copies of all relevant business records as soon as possible and to compare them with prior copies of the same paperwork to look for signs of alteration.

Propose alternative dispute resolution

There are times when there is no choice but to take a partnership dispute to court. However, avoiding court can reduce the expense of the dispute.  Arbitration is one way to cut litigation costs as well as the use of a private judge to hear the matter.  An agreement to mediate a dispute before filing suit or engaging in arbitration may be effective and may preserve the relationship of the parties.  Resolving matters outside of court keeps open the possibility of repairing the relationship and allows the parties to continue working with one another.

Those who have been recently sued by a business partner may need to put some plans in place to protect themselves from the worst-case outcome, which might include the loss of their interest in the business. Seeking legal guidance is usually a good place to start.