Starting a business with partners can be an exciting endeavor. You share the risks and rewards, combining your talents and resources.
But when disagreements emerge, the dream can quickly turn into a nightmare. Partnership disputes are complex legal matters with high stakes for your business’s future.
At TONG LAW, our California partnership dispute attorneys have extensive experience representing clients in partnership disputes. We understand the challenges you face during times of conflict with your business partners. We aim to resolve issues efficiently while protecting your interests. Contact us today for a consultation.
Partnerships Depend on Strong Agreements
The foundation of any general partnership in California is the partnership agreement. This crucial document outlines each partner’s rights, responsibilities, and percentage of ownership. It provides the framework for making major business decisions and distributing profits and losses.
Most importantly, a well-drafted partnership agreement establishes processes for resolving disputes between partners. Rather than heading straight to court, partners can first attempt mediation or arbitration. The agreement should address buyout terms if a partner departs and dissolution details if the business ends.
Without a partnership agreement, California follows the default terms of the Revised Uniform Partnership Act. However, relying on statutory provisions leaves many issues unaddressed. We recommend establishing a customized agreement when forming your partnership.
At TONG LAW, our business lawyers can help you craft an agreement that meets your specific needs. A little time invested early on can save you significant headaches later if disputes emerge.
Why Partnership Disputes Arise
Even partners who get along well may encounter disputes for various reasons:
- Breach of the partnership agreement – One partner violates a term of the agreement, like withdrawing more than their share of profits. This undermines the partners’ original deal.
- Breach of fiduciary duty – Partners have an obligation to act in the best interest of the business. But sometimes, self-interest takes over, and a partner engages in deceptive or fraudulent behavior.
- Disagreement over dissolution/buyout – Partners may have differing opinions on the timing and terms of dissolving the partnership or buying out a departing partner.
- Unequal profit distribution – Partners may disagree about the allocation of profits and losses, especially if they feel their contributions are not fairly rewarded.
- Major business decisions – Differences in risk tolerance, vision, or strategy can lead partners to conflict over pivoting, expanding, taking on debt, bringing in new partners, and other big decisions.
Unresolved disputes put your business at risk, from damaging operations to forcing dissolution. Our experienced partnership dispute attorneys focus on reaching resolutions that avoid an existential crisis for your company.
Alternative Dispute Resolution Offers Advantages
Litigation can be time-consuming and ruinously expensive for partnerships. That’s why we usually recommend alternative dispute resolution (ADR) processes first when feasible. Mediation and arbitration both provide more efficient and cost-effective options than going straight to court.
In mediation, a neutral third-party mediator helps partners communicate constructively to reach a mutually acceptable solution. The mediator identifies key issues, facilitates discussion, and may propose settlement terms. However, they cannot impose a decision. The process is confidential, and anything said cannot be used later in court. Many partnership agreements require mediation before litigation.
Arbitration also utilizes a neutral third party, called an arbitrator. After reviewing evidence and hearing arguments, the arbitrator issues a legally binding decision to resolve the dispute. Arbitration is generally less formal than litigation and often faster and cheaper. The downside is limited avenues to appeal the arbitrator’s decision.
At TONG LAW, we understand how to advocate effectively in alternative dispute resolution processes like mediation and arbitration to further our clients’ interests. Avoiding prolonged litigation helps maintain business relationships between partners.
Litigation Remains an Option for Contentious Disputes
If informal negotiations and alternative dispute resolution fails to produce a settlement, heading to court may become necessary. Our business litigation lawyers handle partnership breakups and other complex business disputes on behalf of our clients. We are experienced trial lawyers who excel at navigating high-stakes partnership litigation.
The litigation process begins with one partner filing a lawsuit against the other partner(s), stating claims related to the partnership dispute. The discovery phase follows, with each side gathering evidence to support their version of events. We help build the strongest case possible for our clients during discovery.
Next comes trial preparation, including motions to exclude certain evidence and witness preparation. At trial, partnership litigation usually centers around three key issues:
- Breach of contract claims related to violations of the partnership agreement
- Breaches of fiduciary duty owed between partners
- Disputes over the valuation of the partnership and partner interests
The jury or judge decides factual issues at trial. Their verdict determines whether any damages will be awarded.
Throughout this complex process, our focus remains on resolving the dispute efficiently and favorably for our client. We draw on our substantial litigation experience in business partnership disputes.
California Laws and Cases Governing Partnership Disputes
California has established partnership laws and precedent-setting court cases that shape how partnership disputes are handled in the state. Two important examples include:
- California courts have long upheld the fiduciary duties partners owe each other, stemming from the seminal 1928 New York Court of Appeals case Meinhard v. Salmon. The California Supreme Court has ruled that under Meinhard, partners must act honestly, fairly, and openly with the “utmost good faith” toward one another. Partners owe each other fiduciary duties, including loyalty, care, and good faith. Violating these duties can give rise to legal claims by the harmed partner.
- Additionally, a 2012 California appellate case, Roehl v. Ritchie, affirmed the enforceability of arbitration clauses in partnership agreements. The court ruled that the arbitration provision in the partners’ agreement must be followed before any partner could sue the other in court. Mandatory arbitration has now become a standard clause in California partnership agreements.
These two examples demonstrate how laws and court rulings shape our state’s legal landscape for partnership disputes. Knowledge of key precedents provides critical context for resolving partner conflicts.
How an Attorney Can Help With Partnership Disputes
If you find your partnership in turmoil, you need experienced legal counsel. Here’s how we can help navigate the complexities and get your business back on track:
- Craft conflict-resistant partnership agreements – We can help you build a sturdy foundation with a well-drafted agreement that outlines dispute resolution processes and exit strategies.
- Steer disputes toward faster resolution – If conflict arises, we represent clients in alternative processes like mediation and arbitration to pave the way to settlement.
- Advocate fiercely as your litigation counsel – If we must go to court, you need trial lawyers who will fight to win. With our background, we’re prepared to take on that role.
- Rediscover pragmatic solutions – Our priority is finding answers that allow you to salvage your partnership and move forward if possible.
- Minimize dissolution costs – If dissolving becomes unavoidable, we position you for the best possible financial outcome.
Our goal is always to resolve matters as efficiently as possible to help stabilize your business. Our experience and strategic approach provide the legal guidance you need during the uncertainty of partnership disputes.
Let TONG LAW’s Experienced Attorneys Resolve Your California Partnership Dispute
Finding your business partnership in troubled waters can feel like your whole future is at stake. The costs of conflict are real. With so much on the line, you need an experienced legal navigator.
At TONG LAW, we guide clients through partnership disputes with one goal – resolving matters decisively so you can sail onward. We offer pragmatic counsel and steadfast representation, protecting your interests with efficiency.
Armed with deep knowledge of California partnership law and proven success in and out of court, we’re ready to chart the clearest route through your dispute. Don’t leave your partnership’s fate to chance. Contact TONG LAW today and schedule your consultation. Together, we’ll ensure you emerge on steady ground.