Business Partnership Disputes

In legal terms, a business partnership is a collaboration where one or more people come together to engage in business activities.

These partnerships can be established for a new business that is not yet in existence or involves two existing businesses that aim to achieve a specific objective. A typical example would be two well-known companies collaborating to market a single product.

Why Would Two Companies Form a Business Partnership?

There are many reasons why two companies might consider forming a business partnership, such as:

1. Developing or promoting a unique product that combines elements from both businesses;
2. Expanding their customer and client base;
3. Jointly conducting market trend research; or
4. Increasing profit margins.

When Does a Business Partnership End?

A business partnership usually ends once the specific goals are accomplished or if one partner is unable to continue with the business activities, becomes incapacitated, or passes away.

The terms of the business partnership are typically outlined in a business partnership agreement, a legal document that governs the conditions for conducting business as partners.

Do I Need a Partnership Agreement?

Having a comprehensive business partnership agreement is crucial to avoid potential disputes. It should be clearly written and include accurate, specific details about the company’s activities.

Some examples of what a business partnership agreement may contain are:

• Basic identification information for each partner, including names and contact information;
• The duties and responsibilities of each partner involved;
• The specific distribution of profits and losses for each partner, usually equally divided among partners;
• The partnership’s goals and mission statements;
• Restrictions on management and leadership; and
• Specific guidelines regarding the termination and dissolution of the business partnership.

How Do I Register a Partnership?

Registering a partnership involves several steps that may vary depending on the jurisdiction in which your business operates. However, the general process for registering a partnership includes the following steps:

1. Choose a partnership name: Select a unique name for your partnership that reflects your business’s identity and complies with your state’s naming regulations. In some jurisdictions, you may need to include a reference to the partnership structure, such as “LP” for limited partnership or “LLP” for limited liability partnership.
2. Check name availability: Before registering your chosen name, ensure it is available and not already in use by another business entity. You can typically do this by searching your state’s business entity database.
3. Register a fictitious business name (if applicable): If you plan to operate your partnership under a name different from the legal names of the partners, you may need to register a fictitious business name or “doing business as” (DBA) name. This process varies by state, so check your local regulations for specific requirements.
4. Draft a partnership agreement: Although not always legally required, it is highly recommended to create a partnership agreement outlining the rights, responsibilities, profit, and loss allocation, and other aspects of your partnership. This agreement can help prevent disputes and misunderstandings between partners.
5. Obtain required permits and licenses: Depending on the nature of your business, you may need to obtain various permits and licenses at the federal, state, or local levels. Research the specific requirements for your industry and location.
6. Register with the appropriate government agencies: To formally register your partnership, you may need to file documents with your state’s Secretary of State, Department of Revenue, or another relevant agency. The required documents may include a partnership registration statement, certificate of limited partnership, or similar forms, depending on your partnership type and jurisdiction. You may need to pay a filing fee as well.
7. Obtain an Employer Identification Number (EIN): If your partnership has employees or is required to file certain tax forms, you must obtain an EIN from the Internal Revenue Service (IRS). You can apply for an EIN online, by fax, or by mail.
8. Register for state and local taxes: Depending on your state and local tax requirements, you may need to register for sales tax, income tax withholding, and other taxes relevant to your business.
9. Open a business bank account: To separate your partnership’s finances from your personal finances, open a business bank account using your partnership’s legal name and EIN.
10. Maintain ongoing compliance: After registering your partnership, ensure you meet all ongoing compliance requirements, such as filing annual reports, paying taxes, and renewing licenses and permits.

What Are Some Common Types of Business Partnership Disputes?

The most prevalent types of business partnership disputes involve a breach of contract.

As mentioned earlier, a business partnership contract covers the specifics of how the partnership operates, including short-term joint ventures and long-term agreements. A breach of this contract occurs when one party fails to fulfill their duties as specified in the contract or otherwise does not uphold their end of the agreement.

Some common examples of contract breaches in business partnerships include:

• Failing to make necessary payments for goods or failing to deliver the goods once payment has been received;
• Delivering the wrong goods or delivering them late; or
• Failing to relinquish business property upon the sale or transfer of the business.

In this context, “goods” can refer to physical goods or any other item the business deals with.

Other common types of business partnership disputes include:

• Violating a non-compete clause or similar contract term;
• Unauthorized disclosure of confidential company information;
• Breach of the business partnership agreement itself; and
• Violations related to insider trading.

Additional legal issues may arise with business partnership disputes, such as disputes over which partner may be held legally liable for a product liability claim or a customer’s injury resulting from the partner’s product or service. Often, resolving these more complex legal disputes requires more extensive legal action.

Strong and detailed partnership agreements can help avoid business partnership disputes if both parties adhere to the agreed terms of the business partnership contract.

How Are Business Partnership Disputes Resolved?

When the parties themselves cannot resolve business partnership disputes, they often result in a lawsuit. A lawsuit may be necessary to determine which party is at fault in the dispute, especially in cases involving more complex legal issues like liability claims.

If the dispute goes to court, the court will likely examine the business partnership agreement to determine the rights and responsibilities of each partner involved.

The business partnership agreement may include a clause specifying how to handle any legal disputes that arise. For example, the agreement may state that partnership disputes must be resolved through a lawsuit.

Alternatively, the agreement may require the parties to seek alternative dispute resolution methods, such as mediation or arbitration, before pursuing a lawsuit.

Can Damages Be Awarded?

If the non-breaching party successfully proves that the other business violated the terms of the partnership contract, monetary damages may be awarded. These damages are typically determined by a judge or, in some cases, by a jury.

The purpose of the damage award is to compensate for the losses resulting from the breaching party’s actions. In certain cases, an expert witness may be needed to determine liability, establish damages, or help resolve other legal issues.

Do I Need an Attorney for My Business Partnership Dispute?

If you require assistance forming a business partnership or drafting a partnership agreement, it is in your best interest to consult a qualified and knowledgeable corporate attorney.

Additionally, if you find yourself in a business partnership dispute, consult an experienced business attorney in your area. As mentioned earlier, business partnership disputes often involve more complicated legal issues than just disputes. An experienced business attorney can help you identify the existing legal issues and advise you on the best course of legal action.