In legal terms, a business partnership is an arrangement in which one or more people join together to conduct business activities. Partnerships can be formed for a new business that doesn’t yet exist, and may be run by just a few partners, or between two existing businesses that are wanting to accomplish a specific goal. An example of this would be two brand name companies working together to market a single product.
Other examples of reasons two companies might consider a business partnership could include:
- Creating or marketing a specific product, combining aspects of both businesses;
- Expanding their customer and client base;
- Conducting market trend research together; or
- Expanding profit margins.
Generally, a business partnership will be terminated once the specific goals are met. They may also terminate if one partner finds themselves unable to continue with the business activities, becomes incapacitated, or dies. The terms of the business partnership are typically detailed and agreed upon in a business partnership agreement, which is a legal document governing the terms and conditions for conducting business as partners.
A clear business partnership agreement is essential in avoiding potential business partnership disputes. It should be clearly written and include precise, specific details regarding the company’s activities. Below are some specific examples of what a business partnership agreement may contain:
- Basic identifying information for each partner involved, such as names and contact information;
- The duties and responsibilities of each partner involved;
- The specific allocation of profits and losses for each partner involved, which is typically equal amongst most partners;
- The goals and mission statements of the partnership;
- Restrictions on management and leadership; and
- Specific instructions regarding the termination and dissolution of the business partnership.
Business partnership laws vary from state to state, with some states having very flexible partnership requirements that make it easy for a business to be registered as a partnership. Certain state statutes must be considered when forming a business partnership.
The most common types of business partnership disputes that may arise involve a breach of business contract. As previously mentioned, a business partnership contract covers the specifics of how the partnership operates, including the partnership’s short term joint business ventures and long term agreements, etc. A breach of this contact occurs when one of the parties fails to perform their duties as specified in the contract, or otherwise does not hold up their end of the bargain or deal.
The following are some of the most common examples of breach of contracts concerning business partnerships:
- Failing to make necessary payments for goods, or failing to deliver the goods once the payment was received;
- Delivering the wrong goods, or delivering them late; or
- Failing to surrender business property upon the sale or transfer of the business.
Here, the term “goods” can refer to physical goods or whatever it is the business is dealing in.
Some of the other common types of business partnership disputes include:
- Violating a non-compete clause, or similar contract term;
- The 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. For example, there may be a dispute over which partner may be held legally liable for a product liability claim, or for a customer’s injury resulting from the partner’s product or service. These more complex legal disputes can often require more extensive legal action to resolve.
Importantly, business partnership disputes may be avoided by a strong and detailed agreement, given that both parties simply adhere to the agreed terms of the business partnership contract.
Business partnership disputes that cannot be settled between the two parties themselves often lead to a lawsuit. A lawsuit may be necessary in order to determine which party is at fault in the dispute. This is especially true in cases involving more complex legal issues, such as liability claims. Should the dispute be brought before a court in a lawsuit, the court will most likely examine the business partnership agreement in order to determine the rights and responsibilities of each partner involved.
The business partnership agreement may contain a clause that specifies what should be done about any legal disputes that may arise. For example, the agreement may state that partnership disputes must be solved with a lawsuit. Alternatively, the agreement may state that the parties must seek alternative dispute resolution methods before pursuing a lawsuit, such as mediation. It is important to have a clear understanding of the agreement, and adhere to it, in order to avoid any unnecessary lawsuits.
If successful in proving that the other business breached the terms of the partnership contract, monetary damages awards are available to the non-breaching party. These awards are typically determined by a judge, but may also be determined by a jury. The purpose of the damage award is to help cover the losses resulting from the breaching party’s actions. In some cases, an expert witness may be required to help determine liability, prove up damages, or help resolve other legal issues.
If you need assistance forming a business partnership or drafting a business partnership agreement, it is in your best interests to consult with a well qualified and knowledgeable corporate attorney.
Additionally, if you find yourself in a business partnership dispute, you should also consult with an experienced business attorney in your area. As mentioned above, business partnership disputes often involve more complicated legal issues than just the dispute at hand. An experienced business attorney can help you determine what legal issues exist, and advise you of your best course of legal action. Finally, they can represent you in court as needed.