Partnerships go bad for a number of reasons and the longer the dispute lasts, the more insurmountable the conflict can become. It is critical for stakeholders to be cognizant of potential sources of disagreement and address them whenever possible. Written partnership agreements are useful in averting problems – to the extent they adequately address the issues material to the harmony of the partners in the business, but they cannot account for all possible clashes. Therefore, it is essential to recognize disagreements and address them before they deal a devastating blow to the partnership.
Factors Behind Partnership Disputes
Partnership conflicts happen due to almost any aspects of operations or component of the entity, but certain areas are more prone to disagreement. Some examples of common partnership disputes that our attorneys can assist with include:
- Breach of Contract and Agreements: Whether through written contract or oral agreement, those involved in a partnership create rights and obligations between themselves and the entity – as well as among each other. A breach may be due to an open and obvious misdeed, but disputes are also common when partners disagree about the subtle aspects of serving the organization. A written document may contain specific provisions on how to resolve these conflicts and taking legal action, but partners working under an oral agreement also have rights under Massachusetts breach of contract laws.
- Breach of Fiduciary Duty: Partners occupy a fiduciary relationship with respect to the entity and each other, so they owe a general fiduciary duty act in good faith in all dealings related to operating the business. Honesty, loyalty, care, and fairness are also incorporated into their legal obligations. A breach of fiduciary duty is actionable by the other stakeholders on behalf of the partnership, or individually in some cases.
- Unethical Activity: Acts that are unethical are not always grounds for a criminal case or civil cause of action, but they can certainly form the basis of a serious partnership dispute. Many stakeholders find themselves involved with partners that do not share their vision, enthusiasm, or objectives for the enterprise. Unfortunately, unethical partners can create serious problems for your organization’s reputation.
- Embezzlement: The unlawful withholding of partnership assets for the purpose of converting to personal use is embezzlement, and it is both a crime and grounds for a civil lawsuit. The cause of action presumes that the person who engaged in the conversion was entrusted with management of the assets or money, which was intended for a specific application.
Embezzlement is often a series of fraudulent acts, involving a scheme of illegal conduct over time without the knowledge of other partners. The perpetrator may take precautions to conceal the conversion of property, or take a small proportion of partnership assets that goes undetected.
- Fraud: When a partner deliberately and intentionally acts to deceive others for financial gain, other stakeholders may have a claim for fraud. Usually, the deception is achieved through intentional misrepresentations or concealment of key facts, which partners rely upon to the detriment of their interests.
Though fraud is a crime, the wrongdoer can also be held liable in civil court, where the victims of the scheme can recover money or the equivalent. Aggrieved partners can also request equitable relief, such as rescission of an agreement that is founded upon fraud.
Laws Concerning Partnership Disputes
Massachusetts has enacted the Uniform Partnership Act, which contains provisions on the rights and interests of stakeholders, powers of the entity, recordkeeping, and an array of other matters involved with creating, operating, and dissolving a partnership. It also incorporates legal and equitable provisions of general common law: Certain aspects of running a partnership are governed by the concept of legal precedent, as opposed to the rights and remedies described in statutory law. Civil claims for breach of contract, breach of fiduciary duty, and fraud are examples of cases that are rooted in common law.
How a Lawyer Can Help With Partnership Disputes
As with many legal matters, a lawyer can offer assistance with understanding the law, weighing legal options for recourse, and taking action to enforce the rights of partners. However, for many stakeholders, the partnership is more than just a source of income. Our attorneys at Rodman Employment Law know that there may be more at stake with these conflicts as compared to an arm’s length business transaction: To stakeholders, the partnership is their livelihood and there are emotional considerations that go behind the financial investment.
With such passion comes the potential for emotion to cloud judgment, bringing to mind another very important role an attorney can play: Keeping the focus on what’s best for the partnership and the individuals who comprise it. Often, a lawyer can facilitate compromise in a partnership dispute by guiding a productive conversation. If attempts to resolve the dispute are unsuccessful, or there are other grounds to initiate litigation, an attorney can fight for all available legal remedies.
Partnership Disputes Links & Resources
Exiting or Dissolving a Business Partnership – Your Options and the Process Explained – This website provided by the U.S. Small Business Administration and gives advice on how to go about ending a business partnership.
General Laws Part I Title XV Chapter 108A – Massachusetts state laws regarding partnerships.
Partnership law: an overview – A resource provided by Cornell Law School which details state and federal law regarding partnerships.
- 11% of small businesses in the United States were partnerships as of September 2011.
Consult with a Knowledgeable Massachusetts Attorney About Partnership Disputes
At Rodman Employment Law, our partnership disputes attorneys share your goals for your organization, which is why we are dedicated to assisting you in overcoming these challenges. Our team consists of accomplished lawyers who can provide knowledgeable advice on any type of commercial or business disagreement. While we would develop a strategy to resolve your dispute through negotiation or mediation, we are prepared to undertake all available legal courses of action that align with your intentions. Please contact our Boston-based office to set up a consultation regarding your situation. It may also be helpful to review a summary of how partnership disputes arise, common examples, and how an experienced attorney can help.
If you would like more information about partnership disputes, your individual rights, or the interests of the entity itself, please contact the Boston-based litigation law firm of Rodman Employment Law. You can reach our Newton, MA office at (617) 820 5250 or visit our website to schedule a consultation.