What happens if one partner breaches their contract?

Anytime two or more persons enter into a business partnership, they should establish a contract that outlines the nature of each person’s responsibilities and limits of authority. Contacts are essential to solidify expectations and provide each party with legal recourse should the other party fail to uphold their duties. This is important even if your business partner is a friend or family member.

A contract may seem unnecessary when everything is going well, but it can be essential to quickly resolve any disputes that may arise overtime and to protect your business’ long-term health. What should business owners do if their partner breaches a contract?

Contact breaches vary in nature and scope

A contract breach can occur anytime a partner deliberately or accidentally fails to adhere to their responsibilities outlined in the partnership agreement, or exceeds the specified limits of their authority. The exact nature of the breach can drastically vary depending on the contract and the individual’s actions; however, a partnership agreement typically outlines:

  • Each person’s responsibilities and level of authority
  • How company profits are shared
  • How a business-related decision will be made, and who can do so
  • How new partners can be added
  • What happens if a partner leaves the firm or dies
  • How business disputes should be resolved

Understanding your resolution options

There are several options to address a contract dispute. Once an individual breaches the contact, partners can resolve their concerns through:

  • Mediation: parties mutually determine a beneficial resolution with the assistance of a mediator.
  • Arbitration: an arbitrator listens to each party, analyzes the facts of the case and determines a fair outcome.
  • Litigation: a lawyer represents each party in court and a judge determines the final resolution.

The selected resolution method will depend on the nature of the case and each party’s ability to negotiate. If the partners can work together, mediation may work well and quickly resolve the concern. If neither person can agree, litigation may be the best option. A skilled contract attorney can advise partners on which resolution method may best serve their needs.