What Happens When a Business Partner Breaches a Partnership Agreement?

Business partnerships depend on trust, communication, and clearly defined responsibilities. When one partner stops following the terms of the partnership agreement, however, the resulting conflict can quickly affect finances, business operations, and the future of the company. In Pennsylvania, the partnership agreement generally establishes the rules governing the partners’ relationship, but state law also provides important protections and remedies when a partner fails to uphold those obligations.

The Partnership Agreement Comes First

Pennsylvania’s Uniform Partnership Act of 2016, found in Title 15, Chapter 84 of the Pennsylvania Consolidated Statutes, gives significant importance to the partnership agreement. Under 15 Pa.C.S. § 8415, the agreement generally governs relationships among partners, their rights and duties, and the business and conduct of the partnership.

A breach might involve failing to make an agreed contribution, improperly taking partnership funds, making unauthorized business decisions, violating restrictions on competition, or failing to perform responsibilities established in the agreement. The specific language of the agreement can therefore be critical when determining whether a violation occurred and what consequences may follow.

A Breach May Also Involve Fiduciary Duties

A partner’s obligations do not necessarily end with the written terms of the agreement. Under 15 Pa.C.S. § 8447, partners owe the partnership and one another duties of loyalty and care.

The duty of loyalty includes obligations concerning partnership property, profits, business opportunities, conflicts of interest, and competition with the partnership. Pennsylvania law also requires partners to act consistently with the contractual obligation of good faith and fair dealing.

This means conduct that appears to be a disagreement over business strategy could become a much more serious legal issue if a partner is using partnership assets for personal benefit or taking a business opportunity for themselves.

What Legal Options Does a Partnership Have?

The appropriate response depends on the nature and severity of the breach. In some situations, the partners may be able to resolve the issue through negotiation, enforcement of the partnership agreement, or another agreed dispute-resolution process.

More serious disputes may require litigation. Pennsylvania law recognizes actions by partners and partnerships to enforce rights arising under the partnership agreement or the state’s partnership statutes. A partner may also have rights to obtain information concerning the partnership’s activities and affairs.

If the relationship has deteriorated to the point that the business can no longer operate effectively, additional remedies may become relevant. Pennsylvania law addresses dissociation, dissolution, and winding up of general partnerships under 15 Pa.C.S. Chapters 84 and 85. Depending on the circumstances, a partner’s wrongful dissociation may also result in liability for damages.

Protect the Business Before the Dispute Takes Over

A partnership dispute can affect far more than the relationship between two owners. Contracts, employees, customers, business assets, finances, and future opportunities may all be placed at risk when partners cannot agree.

If a business partner in Pennsylvania has breached a partnership agreement, reviewing the agreement and the surrounding circumstances promptly can help determine the appropriate next step. Beckley & Madden, LLC represents Pennsylvania businesses in partnership and business disputes. Contact the firm to discuss your situation and learn how an experienced business attorney can help protect your interests and the future of your company.