Breach of Partnership: Definition, Resolution and Remedies

"When entering a partnership, you should have realistic expectations from the business venture. Like any other investment, it usually takes time before you can enjoy the profit returns.

In partnerships, you share both the profits and the losses. In short, you have to be there for the good and the bad.

However, there are people who do not have the patience to wait for their investment to work out, and start reneging on their obligations to the company.



This is when conflicts and disputes arise and prevent the terms and conditions of the partnership agreement from being carried out.

If that happens there may a breach of partnership.





Breach of Partnership



A partnership is usually formed when two or more investors agree to form an unincorporated company and this is put in writing through a partnership agreement.



A partnership agreement is a binding contract that is signed by the investors (partners) that specifies their duties and rights to the company.



It includes the following information:



• Name of partnership

• Contributions of the partners

• Allocation of profits and losses

• Partner’s authority

• Decision making

• Management duties

• New partners admittance

• Dispute resolution



Depending on the terms of the contract, a breach of partnership can happen when:



• The partner or partners fail to fulfill their duties on time.

• The partner or partners fail to perform their duties in accordance to the partnership agreement.

• The partner or partners do not fulfill any of their obligations to the company.





Breach of Partnership Resolution



If a breach of partnership occurs, one or more partners may move to have the terms and conditions of the partnership agreement be enforced.

If that is not an option, the other partners may try to recover any financial damage the breach has caused from the partner who committed the breach.



The most common avenue to resolve partnership disputes is through lawsuits and the judicial system.



However, most courts recommend the opposing parties to settle the conflict through alternative dispute resolution processes.



The opposing partners may decide to go through mediation or a binding arbitration to resolve the conflict.



The partnership agreement usually contains a clause on how partnership disputes should be resolved before going to the courts.





Breach of Partnership Remedies



Once the breach of partnership is proven, the courts may award some relief to the aggrieved partner/s.



The following are some of the most common remedies to a breach of partnership:



• Damages – This is the most common remedy for partnership breaches. This is a payment that is made by the breaching partner to the non-breaching partner. Here are some of the basic types of damages:



o Compensatory – aims to put the non-breaching partner in a position that they should have been in if the breach did not occur.

o Nominal – Token damages awarded when no actual loss of money is proven

o Punitive – Damages that are meant to punish a partner for a wrongful act and discourage future acts of the same nature.



• Specific performance – Court orders breaching partner to perform duties under the partnership agreement. This is used in unique cases where damages are not enough to resolve the problem.



• Cancellation and restitution – Restitution aims to put the non breaching partner to the position it was before the breach happened, and cancellation voids the contract and relieves all parties of their duties and obligations.



To know more about breach of partnership actions, consult a business and commercial law attorney for more information."