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What are your legal actions if your partner breaches a contract?

On Behalf of | Apr 17, 2021 | Business Litigation

Ohio entrepreneurs who are forming new business partnerships each day will need to construct partnership agreements. Such an agreement helps to identify how the new business will be run and who is responsible for what. While these partnership agreements don’t have to be in writing, it’s better that they are kept for future legal needs. If you’ve constructed one of these agreements with your business partner and that person has breached it, you have several different legal recourses.

Possible expulsion

According to business law, you may possibly expel your partner who breached your partnership agreement if your agreement stated expulsion as a possibility. If you sought the help of a legal professional when writing your business partnership agreement, it’s likely that your counsel included a clause about expulsion. Most expulsion clauses state that the partner may be expelled from the business, and the partnership may continue to operate without their presence.

Sue for partnership damages

In the event that your partner’s breach of your agreement resulted in financial damages to the partnership, you may sue him or her. Typically, you may only collect damages that are equal to the partnership’s actual damages minus the breaching partner’s stake in the business. It’s important to determine whether or not the financial damages will be worth the legal fees.

Seek liquidated damages

Some partnership agreements have a liquidated damages clause. This specifies a particular amount of money that a partner must pay the other partner if he or she breaches the partnership agreement. Many courts are only willing to enforce a liquidated damages clause in the event that it’s considered reasonable in light of the anticipated or actual damages to the partnership.

A partnership can be a great way to get started as an entrepreneur. However, most business partnerships fail, and one of the biggest reasons is a breach of the partnership agreement by one or more parties. If you’re in a partnership or if you’re thinking of starting one, it’s vital that you understand what your legal recourses are in the event that your partner breaches your partnership agreement.