Going into business with a partner usually means sharing responsibilities, profits, decision-making, and a long-term vision for the company. But when business partners stop seeing eye to eye, a disagreement can quickly become more than a management problem.
A partner may make unauthorized decisions, misuse company funds, violate the terms of a partnership or operating agreement, exclude another owner from important decisions, or take actions that harm the business. In some circumstances, those actions may give rise to a legal claim.
But can you sue your business partner? The answer depends on what happened, the business structure, the agreements among the owners, and the legal rights involved.
At Hone Law, our Nevada business litigation attorneys help business owners navigate ownership disputes, partnership conflicts, and other complex commercial matters. Here’s what business owners should know before taking legal action against a business partner.
When Can You Sue a Business Partner?
A business disagreement does not automatically create grounds for a lawsuit. Generally, there needs to be a legal basis for the claim.
Depending on the circumstances, that could involve breach of contract, breach of fiduciary duty, misuse of company assets, fraud, interference with the business, or other actionable misconduct.
Common examples of disputes that may lead to litigation include:
- A partner takes company money for personal use.
- A partner violates the partnership or operating agreement.
- A partner makes unauthorized transactions on behalf of the business.
- A partner conceals financial information from another owner.
- A partner diverts business opportunities to another company.
- A partner uses confidential business information for personal gain.
- A partner attempts to improperly force another owner out of the business.
- A partner takes actions that intentionally harm the company or another owner.
The specific legal claims available will depend on the facts and the business entity involved.
Importance of Reviewing Your Business Agreement
Before filing a lawsuit against a business partner, review the agreements governing the relationship. Depending on the company’s structure, those documents may include a partnership agreement, operating agreement, shareholder agreement, buy-sell agreement, employment agreement, or other contracts among the owners.
These agreements may establish:
- Each owner’s responsibilities
- Voting and management rights
- Ownership percentages
- Profit distributions
- Restrictions on transferring ownership
- Procedures for resolving disputes
- Buyout provisions
- Rules for removing or replacing an owner
- Mediation or arbitration requirements
- Restrictions on competition or use of confidential information
The agreement may also provide a specific process for handling disputes before litigation can begin. Ignoring those requirements could make an already complicated business dispute even more difficult.
Can You Sue for Breach of a Business Agreement?
If a business partner violates a valid agreement, the breach may provide grounds for a lawsuit. For example, business owners agree that major company expenditures require approval from all owners. If one owner begins transferring significant company funds without consulting the others, the conduct may violate the parties’ agreement.
A breach of contract claim generally focuses on what the parties agreed to do and whether one party failed to fulfill those obligations. The available remedies depend on the agreement, the nature of the breach, and the resulting harm.
Depending on the circumstances, a business owner may seek financial damages or other relief designed to enforce the agreement.
Understanding Breach of Fiduciary Duty in Business Relationships
Some business relationships involve fiduciary duties. These duties may require an individual to act in good faith and in the interests of the business or other owners, depending on the applicable law and the company’s structure.
A potential breach of fiduciary duty may arise when an owner places personal interests ahead of the business in a way that violates a legal duty.
Examples may include:
- Taking company opportunities for personal benefit
- Misusing company assets
- Concealing important financial information
- Engaging in self-dealing
- Using confidential company information improperly
- Taking actions that unfairly benefit one owner at the expense of another
These disputes can be particularly complicated because the parties may have overlapping contractual and legal obligations.
Financial Misconduct Within a Business Partnership
Financial misconduct can create serious problems for a business. If you believe your partner is taking company funds, making unauthorized purchases, transferring assets, or using business accounts for personal expenses, start by preserving the financial records.
Depending on the circumstances, relevant evidence may include:
- Bank statements
- Accounting records
- Invoices
- Credit card statements
- Payroll records
- Tax documents
- Emails and text messages
- Company financial reports
- Records of transfers or payments
Do not alter or destroy records and avoid making accusations before the underlying information has been properly reviewed. If the evidence indicates that company assets have been misused, an attorney can help determine what legal remedies may be available.
Can You Sue a Partner for Damaging the Business?
Potentially, but the answer depends on what the partner did and what legal rights were affected. Business owners generally have the authority to make decisions within the scope of their role. A disagreement over a business decision is not necessarily grounds for a lawsuit simply because one owner believes the decision was unwise.
The situation may be different when a partner engages in misconduct, violates an agreement, breaches a fiduciary duty, or takes intentional actions that unlawfully harm the business or another owner’s interests.
For example, a partner who secretly diverts a valuable business opportunity to a competing company may create very different legal issues than a partner who simply makes a business decision the other owner disagrees with. The distinction between a legitimate business disagreement and actionable misconduct can be critical.
Ownership Disputes and Attempts to Remove a Business Partner
Ownership disputes can become especially complicated when one partner wants to remove another from the company.
A partner generally cannot assume they can simply force another owner out because the relationship has broken down. Whether an owner can be removed, bought out, or otherwise separated from the company may depend on the governing agreement and applicable law.
Business owners should review any provisions addressing:
- Buyouts
- Transfers of ownership
- Deadlocks
- Removal of owners
- Dissolution
- Valuation of ownership interests
- Dispute resolution
If the governing documents do not provide a straightforward solution, litigation may become necessary to resolve the dispute.
Remedies Available in a Business Partner Dispute
A lawsuit against a business partner does not always focus on recovering money. In many cases, the goal is to protect the business, enforce agreements, or stop ongoing misconduct. Depending on the circumstances, a business owner may pursue different types of relief.
Monetary Damages
If a partner’s conduct causes financial harm, damages may compensate for legally recoverable losses. The amount and type of damages will depend on the claim and the evidence supporting the alleged losses.
Injunctive Relief
Sometimes the most important goal is stopping harmful conduct before additional damage occurs.
In appropriate circumstances, a court may issue an injunction restricting certain conduct while a dispute is pending. For example, a business owner may need immediate legal intervention if a partner is allegedly transferring company assets, misusing confidential information, or taking actions that could cause ongoing harm.
Enforcement of the Business Agreement
If a partner violates the terms of an operating agreement, partnership agreement, or other contract, enforcing the agreement may be part of the legal strategy. In some cases, this may include seeking damages, specific performance, or other court-ordered relief to ensure compliance.
Buyout or Dissolution
In some disputes, continuing the business relationship may no longer be practical. Depending on the circumstances and governing documents, the parties may pursue a negotiated buyout or other resolution. In some cases, dissolution of the business may become an issue.
The appropriate remedy depends on the nature of the dispute and what outcome best protects the business owner’s legal and financial interests.
Steps to Take Before Suing a Business Partner
Business litigation can be expensive and disruptive. Before filing a lawsuit, it is important to understand both your legal position and your objectives. It is also important to consider whether alternative dispute resolution options, such as negotiation or mediation, may yield a faster, less costly outcome.
Review Your Agreements
Gather the documents governing the business and ownership relationship. Do not rely solely on your understanding of what the partners agreed to. These documents often control how disputes must be handled and what remedies are available.
Preserve Evidence
Keep relevant financial records, communications, contracts, and other documents that may help establish what happened. Even seemingly minor communications can become important in establishing intent or patterns of conduct.
Identify the Actual Legal Claim
Determine whether the conduct potentially involves breach of contract, breach of fiduciary duty, fraud, misuse of company assets, or another legal issue. An attorney can help match the facts to the most appropriate legal theory under Nevada law.
Consider Whether Immediate Action Is Necessary
If company assets are at risk or harmful conduct is continuing, waiting may not be in the business’s best interests. An attorney can help determine whether to pursue immediate legal action or seek injunctive relief.
Consider Negotiation or Mediation
Not every partner dispute needs to end in a courtroom. Depending on the circumstances, negotiating a buyout, restructuring ownership, or reaching another settlement may provide a more practical solution than prolonged litigation.
The goal should not simply be to win the dispute. It should be to protect your interests and determine the best path forward for the business.
How Hone Law Helps With Business Partner Disputes
A dispute between business partners can affect ownership rights, company finances, management decisions, and the future of the business.
At Hone Law, our dedicated attorneys help business owners evaluate and pursue claims arising from partnership and ownership disputes. We can assist with:
- Partnership and ownership disputes
- Breach of contract claims
- Breach of fiduciary duty claims
- Disputes involving company assets
- Business and shareholder litigation
- Injunctive relief
- Buyout and business separation disputes
- Negotiation and settlement
- Commercial litigation
We help business owners understand their legal options and develop a strategy to protect their interests and resolve the dispute as efficiently as possible.
When a Business Partnership Breaks Down, Know Your Options
A serious disagreement with a business partner can put more than the relationship at risk. It can affect your ownership interest, company assets, income, and the future of the business.
Before confronting your partner or filing a lawsuit, review the business agreements, preserve relevant evidence, and understand which legal claims may apply.
Hone Law represents Nevada businesses and business owners in complex commercial disputes. If you believe your business partner has violated an agreement, misused company assets, or otherwise harmed your interests, contact Hone Law to discuss your situation and learn about your legal options.