A partnership offers many advantages to people who are establishing a business, and it accounts for one of the most common approaches to business formation among startups in the United States. However, business operation disagreements, unfulfilled responsibilities, misconduct by one partner, and other potential issues that arise following the launch of a company can worsen the relationship between partners and ultimately lead to partnership disputes. When attempts to settle these matters outside of court fail, reaching a resolution may require litigation.
Litigation in partnership disputes involves filing a legal complaint against one or multiple business partners. It allows the injured party to protect their rights as a partner, enforce contractual obligations, and seek financial damages or fair compensation. Additionally, it offers a course of action after negotiation and meditation efforts deadlock. The reasons for pursuing litigation can include partnership agreement disputes, negligent management, misappropriation of assets, and breaches of fiduciary duty. Regardless of the complaint’s subject, establishing what the lawsuit aims to accomplish represents the most important factor in forming a litigation strategy. Partnership disputes often become emotionally charged affairs due to the feelings of broken trust and betrayal that arise, which frequently lead to parties on either side losing sight of their goals. Identifying the ideal outcome also better enables the partners to evaluate any settlement offers. Commercial and business attorneys who handle partnership litigation play a vital role in creating a plan to attain these results, particularly if the situation requires legal research. In addition to providing representation in trial proceedings, commercial and business attorneys provide guidance on reasonable objectives and deliver ongoing advisement. Attorneys also conduct a thorough analysis of the case, another critical building block of an effective litigation strategy. This examination serves to ascertain options for reaching set goals and to determine the components necessary, such as obtaining evidence, accessing accounting information, interviewing witnesses, consulting experts and securing relevant documents. Moreover, litigation attorneys assist partners in navigating the personal elements inherent to a partnership dispute. Many people form business partnerships with family members or close friends. This pre-existing relationship often influences the conflict’s scope and may cause one or both of the parties to make reactive emotional decisions, a response that does not normally occur in other business disputes. By removing emotionally driven interactions between parties, attorneys keep litigation activities on task and focused on achieving their clients’ desired results. While litigation offers a number of benefits, legal professionals often recommend attempting to resolve the problem outside of court first. Other options that allow partners to resolve their disputes include arbitration, mediation, and settlement negotiation. However, some circumstances can make litigation unavoidable. For instance, complex partnership disputes tend to involve issues that eliminate the possibility of alternative avenues or that risk compromising the entire company without court intervention. Litigation can also become necessary when one of the partners refuses to cooperate in any means of resolution or is not forthcoming with information, the latter of which might require hiring a forensic accountant or another expert.
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AuthorAn experienced commercial litigator, Zachary Andrew McEntyre currently serves as a senior associate in King & Spalding’s Atlanta. Archives
January 2018
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