5 Reasons Why Business Partner Disputes Can Lead to Litigation

When starting a business, one of the first major decisions made involves choosing a partner. A business partnership can provide many benefits, such as shared responsibilities and resources, complementary skills, and increased credibility. The nature of a partnership may determine how a business will be structured, and the choice of the right type of business entity can help partners manage and operate the business successfully. However, even the most promising partnerships can sometimes go sour.

Business partner disputes can arise for various reasons, and they have the potential to significantly impact a company’s success. In some cases, these disputes may be resolved through negotiation or mediation, while in others, litigation may be necessary. When business partners become involved in legal battles, it is crucial to consult with an experienced attorney who can provide guidance on the options for resolution and representation during legal proceedings. Some common reasons for partnership disputes that may lead to litigation include:

Lack of Clear Roles and Responsibilities

Ideally, the documents that define a business’s structure should detail each partner’s roles and responsibilities within the company. Lack of clarity regarding these issues can lead to disagreements over decision-making power, distribution of work, or how to handle concerns that may arise. To avoid this type of dispute from escalating into litigation, it is vital to establish clear guidelines regarding duties early on in a partnership. A partnership agreement can also detail how decisions will be made while specifying each partner’s level of authority in different areas.

Fundamental Differences in Business Goals

If partners are not aligned regarding their long-term objectives for the company, or if they have conflicting visions on how to achieve their goals, serious conflicts can arise. For example, one partner may wish to expand into new areas, while another may want to deepen the level of investment in certain areas that have already seen success. In cases where compromises cannot be reached despite efforts at negotiation or mediation, litigation may become necessary to protect the individual interests of each partner.

Misappropriation of Funds or Assets

A breach of fiduciary duty occurs when one partner misuses funds or embezzles assets belonging to the business without consent from other partners. Partners who engage in illegal behavior may not only violate the trust of others who are involved in the business, but they can also jeopardize the financial security of the business as a whole. These issues may need to be addressed immediately through litigation to prevent a partner from engaging in further behavior that could lead to financial losses. A partner who has been the victim of fraud or embezzlement may need to take action to recover money or assets that have been stolen, while also taking steps to remove the partner who acted illegally from the company.

Disagreements Over Profit Distribution

Issues can arise when partners disagree on how profits should be divided among them, especially if there is an imbalance in the level of effort or investment each partner has contributed to the business. In some cases, one partner may wish to reinvest profits into the business in order to expand and pursue new opportunities, while the other partner or partners may wish to receive their portion of the money earned and use it for themselves. If negotiations fail, and compromises cannot be reached, legal intervention may be necessary to resolve disputes over profit sharing.

Intellectual Property Ownership Disputes

Innovative ideas and inventions are often crucial assets for businesses. However, disputes may arise over whether certain forms of intellectual property are owned by the business or by individual partners or stakeholders. A person may believe that they should maintain ownership of work they created, while other partners may believe that patents, trademarks, and copyrights for this work should be owned by the business and used to generate revenue. To prevent these disputes from occurring or escalating, it is important to establish clear guidelines regarding intellectual property ownership and usage rights at the outset of a partnership. If disputes do arise, litigation may be necessary to determine whether intellectual property was created for the business or independently.

Contact a Naperville Business Litigation Attorney

If you are facing a business partner dispute, an experienced attorney can help you determine your options for resolving the outstanding issues. At the Gierach Law Firm, our DuPage County business litigation lawyer can work with you to resolve these issues through negotiation or medication, and if necessary, we can provide you with effective representation when litigating disputes in court. To learn more about our business dispute resolution services, contact us at 630-756-1160 and set up a consultation.