Steps to Take When Your Business Partner Breaches a Contract

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  2. Steps to Take When Your Business Partner Breaches a Contract
Steps to Take When Your Business Partner Breaches a Contract
Business Law

Small businesses often are partnerships, multi-member LLCs, or joint ventures with one or more people. Drawing on the experience of more than one person and sharing the risk can be an attractive way to start a new business. However, major problems can arise when your business partner doesn’t live up to his or her end of the contract or business agreement. If left unchecked, a partner who breaches a contract could severely damage your business, so it is crucial to contact a commercial lawyer immediately.

We have a long history of handling commercial dispute cases and representing small business owners in various industries. An Arizona commercial lawyer at Provident Law® can advise you of your legal rights if your business partner breaches a contract. Together, we can explore the legal options available to you, determine the best strategy for addressing the breach of contract, and work to minimize the potential damage to your company.

Talk with Your Business Partner

Before you do anything else, sit down with your business partner and have a serious discussion about the breach of contract and what you can do informally to remedy the situation. While the problem may initially seem unsalvageable, if you approach it from a place of civility and understanding, you can devise a solution that safeguards your business and protects your business relationships.

Collect Documentation

You should always maintain files containing important business agreements, contracts, and organizational documents. These documents can be critical in determining and understanding your legal rights in breach of contract cases. In addition, in many cases, your partnership agreement, operating agreement, and/or bylaws will outline the possible remedies you have in case your partner breaches a contract.

You also should collect documentation related to the breach of contract to the extent that it is available. For instance, if documentary evidence shows that your partner has not been performing his or her duties, you should gather copies of that evidence. In addition, if you have written communications with your business partners, including email or text messages, concerning the breach or failure to perform certain obligations or duties, you should obtain hard copies of that evidence for your commercial lawyer to review.

If your contact with your business partner concerning the breach of contract was mostly verbal, consider drafting a timeline of your communications and the events that have led up to the breach. You want to give your commercial attorney as much information as possible about the events involved in the breach of contract and your partner’s actions so that you can consider all viable legal options.

Discuss Your Legal Options

Once you have gathered all the information and documentation concerning the breach, you must fully understand and weigh your legal options. You need the experience and knowledge of an Arizona commercial lawyer to assist you with this step.

Negotiate a Settlement

While you may not have agreed with your partner about handling the breach of contract, your attorney may be able to negotiate an acceptable settlement for both of you. A settlement may be the most cost-effective and expedient way to resolve the situation when your partner breaches a contract.

File a Lawsuit

If you or the company has suffered economic harm due to your business partner’s actions, you may be entitled to compensation through a lawsuit against your partner. However, you should understand that commercial litigation can be complex, lengthy, and costly to your business. You can sometimes resolve a lawsuit through alternative dispute resolution, such as mediation or arbitration. In other cases, you may have to take the matter to trial for a final resolution.

Dissolve the Business

If you can no longer do business with your partner when he breaches a contract, you must determine whether you want to continue the business in some form or dissolve it altogether. For example, you may need to dissolve the business entity and continue it in another form, or you may be forced to scrap it altogether, depending on the terms of your partnership agreement, operating agreement, or other governing document. In either case, a determination must be made as to who owns the assets, including trade secrets and other intellectual property.  Alternatively, there may be a mechanism by which you can expel the partner from the business and continue to operate as normal.

Whatever the case, you need to understand your options and determine which would be best for you and your business.

Contact Us for Assistance with Your Commercial Law Issue Today

The commercial attorneys at Provident Law® have over 200 years of combined legal experience representing clients in commercial litigation, and we are experienced in efficiently and economically resolving commercial disputes. We aim to build a long-term relationship with you as we work together to proactively address and solve your most complex legal problems in commercial litigation, business law, and more. Contact a commercial lawyer today by calling (480) 388-3343 or reach out to us online to set up a time to see what we can do for you.

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