There is an assumption that partners will share the responsibility, risks and rewards when they go into business together. Depending on the size of the company and the number of partners, the impact of a partner walking out can range from inconvenient to devastating. This often leaves the remaining partner or partners feeling as if they are left holding the bag. Thoughts may even turn to pursue legal action to secure financial compensation or other damages.
Is legal action possible?
It will depend upon the partnership agreement’s terms and other factors. These include:
- The partner’s actions intentionally or inadvertently harmed the company’s best interests.
- The partner’s act of abandonment violates the partnership agreement.
- The partner’s actions are a violation of their fiduciary duty.
- The partner infringed on the business’s intellectual property rights or trade secrets (including such information as customer lists, pricing, and distribution networks).
One or a combination of the above reasons, or other similar ones specific to the business, could lead to a lawsuit.
Business dissolution possible
If the partner was within their rights to leave, which may be the case, the action often triggers the dissolution of the business. The terms of the dissolution would be outlined in the partnership agreement or operating agreement. State law may also apply if there is not a valid contract. The partner who walks still has obligations to meet the terms of their contract and/or comply with state laws.
Valid contracts are key
The partners may have launched with a handshake, but the partnership or operating agreement is the proper foundation. Legally valid agreements that outline the partners’ responsibilities and obligations can reduce the likelihood of lawsuits and better protect their interests, particularly when one of them wishes to leave.