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My Business Partner Is Suing Me. Now What? 

By James Woods
Managing Partner

Sometimes business partnership disputes can’t be resolved amicably, and one partner files a lawsuit against the other. If your business partner is suing you, it’s hard not to take it personally. Business relationships are close, and being sued over a monetary disagreement, intellectual property, or other conflicts of interest can leave you feeling defensive and angry.

If your partner is suing you, it’s vital to hire a lawyer immediately  – preferably one that isn’t affiliated with the company and who has experience in business lawsuits. They’ll guide you through the lawsuit process and advocate for your interests.

If your business partner is suing you, don’t panic. Here are some strategies to help you maintain peace of mind and protect yourself.

Why Would My Business Partner Sue Me?

If you’ve violated the terms of your business agreement, then your business partner may file a suit. Breach of Contract is a common reason for a lawsuit, although proving this may not be straightforward. If one or more contract terms are breached and result in damages, the other party may sue.

Potential contracts that can be breached are:

  • Non-disclosure agreements
  • Intellectual property agreements
  • Partnership agreements
  • Shareholder buyout agreements

There are a few other reasons why one business partner would sue the other.

Fraud, theft, embezzlement, or commingling funds are all common types of criminal business activity and are considered to be a breach of fiduciary duty by the offending partner. If one partner suspects another of illegal activity that affects the business, they could choose to sue, thereby removing themselves from the crime.

If one partner isn’t fulfilling their duties as per the business contract, the other partner may sue them for abandoning their commitment. The plaintiff will have to demonstrate that the inactions of the other party directly harm the company and partnership.

Violation of intellectual property rights, such as trademark infringement or using one partner’s intellectual property without permission, is also a reason for a partnership lawsuit.

Outcomes of a Partnership Lawsuit

Depending on the charges in the suit, the business could be dissolved, or one partner could be ousted or expelled. A breach of contract liability could end up with a settlement in which one partner may buy out another partner or pay monetary damages.

If your partner is pursuing legal action against you, it’s essential to know your options. Out-of-court settlements, typically through arbitration or mediation, are common. Litigation is costly and time-consuming, and often, the wronged partner files the lawsuit to resolve their concerns. It may be in their interest to settle out of court.

Hire a Business Lawyer

Choose a business lawyer with experience handling the type of claim you’re facing. For instance, some may specialize in contract disputes, while others may focus on criminal activity and fraud. Once you have retained legal counsel, communicate with your partner through your lawyer. Make sure to document any conversations that happen about the issue, including notes from phone calls, emails, and text conversations.

During your initial consultation, bring your partnership agreement to your lawyer. Not everything in the contract may be legally enforceable, which affects whether the suit could be dismissed or not. Your lawyer can advise you on what to expect.

It’s important to disclose everything to your business attorney, even if you know you’ve engaged in wrongdoing. They can’t help you without all of the facts, and hiding information – whether you’re embarrassed or don’t want to get in trouble – hinders their ability to advocate for your interests. 

Make sure to follow all instructions your lawyer gives you, especially regarding the day-to-day operations of your business.

At Woods Lonergan, we help business owners protect their best interests. Consult our business attorneys today.

About the Author

James Woods, Managing Partner of Woods Lonergan, holds more than 25 years of experience in corporate, real estate, and business legal matters. His expertise in handling negotiations, litigation, jury trials, and all forms of alternative dispute resolution spans multiple areas, including corporate, real estate, and commercial litigation. James actively represents dozens of Cooperative and Condominium Boards and serves as counsel to many Corporate Boards. Prior to founding the firm, James proudly served as an Assistant District Attorney for Nassau County and handled both jury and bench trials. With experience that also covers sophisticated transactions and complex acquisitions, James also serves as counsel to several domestic companies in a range of industries and commercial arenas, including real estate, insurance, banking, transportation, and construction. If you have any questions about this article you can contact attorney James Woods through his biography page.