Can I Sue My Business Partner for Not Working? Grounds for Suing a Business

A business partner may be sued for not working if the partnership agreement requires the partner to work. The grounds for suing a business partner include breach of agreement and breach of fiduciary duty.

Author: Brad Nakase, Attorney

Email  |  Call (888) 600-8654

Can One Business Partner Sue Another Partner?

Creating and running a new business with one or more partners can be an exciting time. At the beginning, everything feels new, fast-paced, and full of thrills. Even though not everything will go as planned, there is comfort in the knowledge that all the company’s partners share the same dreams and goals when it comes to growing the business and making it a success.

But sometimes business relationships go bad. What happens when partners can no longer get along?

When a business partner engages in behavior or conduct that is detrimental to the business, an owner may wonder what can be done about the situation. Can members of a limited liability company sue each other? Can a business partner be sued for negligence? Can a business partner be sued for abandonment? These are all very common questions. As it happens, there are several grounds for suing one’s business partner, which will be discussed below.

What Are the Grounds for Suing a Business Partner?

A business partnership may be defined as two or more individuals who work together to build and run a company. This means that the partners all play a part in the decision-making process. Some people may be comfortable working with others and collaborating, but they may be less happy about sharing the power of decision-making. Often, a partner may be able to force the others into an agreement without the other partners’ consent. Luckily, there are steps that may be taken to stop one partner from creating deals without the approval or knowledge of the other partners.

There are two different types of partnerships: general and limited. A general partnership makes it so that all co-owners of a company have equal power and rights to the income of the business. All partners have equal power to make decisions, including those that affect the management of the company. In return for these rights, all partners have personal liability for the business’ liabilities. This means that if the business runs out of income, the partners are required to make up the difference. A limited partnership, by contrast, means that one set of partners has full supervisory control over the company and power that another set does not enjoy. Limited partners cannot enter into contracts that would bind the business, but they are not liable for the business’ debts and obligations.

Some business partner disputes can be solved without taking legal action. However, on occasion, pursuing litigation is the only realistic option. Below are a few of the most common reasons for suing one’s business partner.

  1. Suing for Breach of Partnership Agreement

Many partnerships have an official partnership agreement that details the business obligations and duties of the company’s partners. If a company has a legitimate, enforceable partnership agreement, then an owner and his or her partner are subject to the rules laid out in that contract. If a business partner breaks one or more of the rules, or terms, of that agreement, and the owner can demonstrate that this breach caused harm to the company, then the owner will have a strong case for breach of the partnership claim.

  1. Suing for Breach of Fiduciary Duty

Business partners owe one another a fiduciary duty to act in the best interest of the company and partnership. This means that each partner places the interest of the partnership and the business at large over their own personal interests, or individual gain. Typically, a breach of fiduciary duty qualifies as a violation of the partnership agreement. However, even if there is no partnership agreement, it may still be possible to sue a business partner who has put his or her individual interests over the interests of the company or partnership.

  1. Suing for Negligence

While it is possible to sue one’s business partner for negligence, one must be able to prove two things in order for the claim to be considered valid. An owner must be able to demonstrate that:

  • The business partner in question did not act as a reasonable individual would have under identical or similar circumstances
  • The business suffered damage as a result of the business partner’s actions

If an owner can prove both of these things to be true, then he or she may have a legitimate negligence claim.

A business partner owes the partnership a duty of care to make decisions in good faith. If he or she fails to do this, then there may be the basis for a negligence claim.

  1. Suing for Abandonment

Abandonment happens when one partner leaves the partnership before the proper ‘winding up’ or dissolution process by which they are released from their obligations. Much will depend on the terms detailed in the partnership agreement. It may be possible to take legal action against the business partner to enforce one’s rights. To determine whether one can sue a partner for abandonment, it is best to consult an experienced business dispute attorney.

Can Members of an LLC Sue One Another?

Limited liability companies are structured a little differently than partnerships. While a general partnership is controlled by a partnership agreement, an LLC has an operating agreement as its form of governance. An operating agreement may detail precisely when and how one member can sue another. In fact, some operating agreements may say that members are not allowed to sue other members at all. For instance, an agreement may call for arbitration to solve disputes, rather than legal action.

Please tell us your story:

0 + 4 = ?

See all blogs: Business | Corporate | Employment

What is profit formula and how to calculate profit formula?

A business profit is revenue minus expenses. The profit formula in accounting calculates the net gains or losses incurred by the business for a period by subtracting the total expenses from the total income: Total Income – Total Expenses - Profit

What is invoice reconciliation?

Invoice reconciliation is the process of matching bank statements to incoming and outgoing invoices. The purpose of invoice reconciliation is to confirm that the data entry is correctly matched with every invoice.

What Makes a Verbal Contract Valid

A verbal contract is valid when contractual elements are satisfied, such as evidence of an offer, acceptance of the offer, and consideration which is an exchange of value between the parties.

Marketing Transport Company

The easiest way of growing your list of clients is to schedule a meeting with businesses that do a lot of shipping and introduce your transportation company. Then, engage an internet presence to market your transportation business.

What Can You Do with a Toxic Business Partner?

A bad partnership could lead to profit loss and toxic company culture. The first way of dealing with a toxic business partner is to schedule a meeting to discuss your concerns calmly.

Disruptive Business Model

Disruptive business models are disruptive innovations that bring new business ideas or technology to existing markets. A disruptive business does not fit the profile of a standard business model. Amazon is considered as one of the world's most disruptive companies.

How to Get a Business Loan with Bad Credit

For small business owners with bad credit, the easiest place to get a business loan is with the SBA. Although not easy, entrepreneurs with bad credit can get a small business loan.

How to Get a Small Business Grant

You can get a small business grant from the Small Business Administration. Also, check your local government for small business stimulus grants.

Pros and Cons of Etsy

Etsy Pro: Your products are given a large audience, and you easily sell your merchandise. Etsy Cons: You can only sell handmade or vintage merchandise, and there are many competitors.

What is a Breach of Contract in California?

A breach of contract in California arose when a party to a contract failed to achieve a legal duty the contract created. When a party to a contract fails to fulfill the terms of a binding contract, they are liable for damages for breaching the contract.

Business Equipment Leasing Pros and Cons

One advantage of equipment leasing is that you don’t need to come up with all the cash to buy the equipment. One disadvantage of equipment leasing is higher overall costs than outright purchasing the equipment.

LLC vs DBA

The main difference between an LLC and a DBA is that an LLC is a business entity, and a DBA is a registered fictitious business name. Sole proprietors, general partnerships, and LLC can register for a DBA.

What is an LLC and how does it work

An LLC is a business entity that protects the owners with limited liability protection. An LLC also offers pass-through taxation, which means the company’s profits and losses pass through to the owner’s personal tax level.

What Is a Disregarded Entity?

A “disregarded entity” refers to an entity with one owner and not organized as an entity such as a corporation, LLC, or partnership. For federal tax purposes, the disregarded entity and the owner, who is a natural person, are not treated separate.

California Breach of Fiduciary Duty

A fiduciary is a professional person who owes a legal and ethical responsibility to another person. Examples of people with fiduciary duties are lawyers, financial advisors, corporate officers, corporate directors, etc. A breach of fiduciary duty occurs when the professional person fails to do what was legally and ethically required of them.

List of 12 Biggest Business Startup Costs

It is a good idea for every entrepreneur to consider the costs associated with starting their business. Financing is stressful, but estimating startup costs goes a long way to ensuring a business succeeds.

Is it legal to sell homemade food in California?

California is one of the only states to allow individuals to sell homemade meals, including meals that contain meat. So long as you have California required permits and licenses, it is legal to sell homemade food in California.

10 Tips on How To Start A Food Truck Business

Running a food truck business is an exciting and trendy opportunity for any entrepreneur with a passion for food. If a business owner chooses the right financing options and follows the above tips, then he or she has every chance of success.

What is a demand letter?

A demand letter is a letter that is commonly written by a lawyer on behalf of a client setting forth facts supporting a demand for money. A demand letter is usually the first step in resolving a dispute between two opposing parties.

What is working capital cycles?

In business, a Working Capital Cycle is the period that a company waits to receive payment to create available cash. A long cycle means tying up capital for a longer time without earning a return. Short cycles allow your business to free up cash faster.

What Happens When Business Partners Disagree?

Before going nuclear, when business partners disagree, the partners should talk about how to move forward. If talking fails, the partners may discuss a buy-out. However, if there is wrongdoing by one business partner, a lawsuit may be an option.

Bank Statement Business Loans

A business bank statement loan lender relies only on the company’s bank statements to qualify the borrower.

How to Prove a Verbal Contract

To prove a verbal contract is by getting witnesses to testify that the agreement was made. Also, proving a contract existed can be supported by documents such as receipts, invoices, delivery, statements, text messages, and emails.

What are business performance metrics, and why it is important?

Business performance metrics is a quantifiable measured value that shows the company’s progress and growth. Business metrics track the business progress and performance. A quantifiable measurement may include customers, revenue, and profits.

Is Sabotaging a Business Illegal?

Yes, sabotaging a business is illegal regardless of who is saboteur, e.g., business partner, competitor, family member, or customer.

See all blog: Business | Corporate | Employment

© Copyright | Nakase Law Firm (2019)