A partnership is a business entity where two or more people combine to form a business with the goal of making a profit. To protect their interests in their business, they should sign a written partnership agreement. You fulfill your obligations run your business in accordance with the partnership agreement and you trust your partners to do the same. But what if they do not? What legal options do you have if you suspect your partner has breached or violated the terms of your agreement?
A partner may expel their breaching partner from their partnership, especially when the breaching partner caused substantial damage to the business. However, your ability to remove your partner will depend heavily on the provisions of your partnership agreement.
Under Texas Law, a partner has a duty of loyalty and care to their partnership and must prioritize the partnership’s best interests over their own when conducting business affairs. They violate that duty under the following circumstances:
- When they breach their partnership agreement
- When they cause harm to the business or their business partners
You or the company can sue your business partner for violating their duty to your partnership and causing damages to you and your business.
You may have included a liquidated damages clause in your partnership agreement, which guarantees compensation when a partner violates the terms and conditions of the contract. The clause predetermines the amount and thus may limit it. It may not be enough to cover the damages.
Another option is negotiating a settlement with the breaching partner. You can discuss what went wrong and find an appropriate resolution. A settlement agreement can allow you to preserve or repair your relationship with your partner and secure compensation. Just make sure the amount you agree on is fair to you and your business.