Get the Advice and Representation You Need from an Experienced NYC Partnership Dispute Lawyer
Partnership disputes can threaten both professional and personal relationships. They can involve a wide range of issues and, in many cases, lend themselves to various potential resolutions. To achieve the most favorable resolution in light of the circumstances at hand, partners need to make sound, forward-thinking decisions and work with an experienced NYC partnership dispute lawyer who can guide them with confidence.
At Knox Law Group, we have extensive experience handling partnership disputes in New York City. We represent partnerships and individual partners, and we provide representation for settlement negotiations, mediation, arbitration, and litigation. As with all matters we handle, we take a cost-conscious, client-first approach—focusing on achieving favorable resolutions for our clients as efficiently (and, when desired, as amicably) as possible.
Alternative Dispute Resolution to Avoid Litigation
A neutral third party may act as a mediator or arbitrator if the partners cannot agree on a particular issue. The role of a mediator is to facilitate discussion among the parties in hopes of reaching an agreement and avoiding litigation. On the other hand, an arbiter makes a decision on the matter in dispute once all parties have submitted all relevant evidence. Each partner can offer defenses and assert points of law to bolster their arguments and counter those of an opposing party.
In partnership agreements, it is common to include alternative dispute resolution (ADR) provisions. These are otherwise known as mandatory ADR clauses. An experienced NYC partnership dispute lawyer with Knox Law helps clients determine whether a mandatory ADR clause is contained in their partnership agreement. The ability to resolve your dispute with partners is determined in large part by the legal advocates supporting your case.
Fiduciary Duties Owed by Partners to One Another
A fiduciary duty is one that requires a person to act in the best interests of another person or entity. Within a partnership, there exist multiple fiduciary duties that each partner owes to the other, and to the partnership itself.
- The duty of loyalty relates to a partner’s responsibility to place the best interests of the partnership ahead of what is best for the partner themselves. Partners cannot engage in outside business dealings that compete with the partnership or would weaken the partnership’s position or financial status.
- Carefully managing a business and making sound decisions exemplify the duty of care that partners owe to one another. must a partner ask themselves before making any decision or taking any action: would a reasonable person under the same circumstances take the same action? Showing prudence, good judgment, and careful planning are hallmarks of a partner who maintains a strong duty of care towards their business.
- Acting honestly and fairly is central to a good partnership. The duty partners owe to one another to act in this manner is known as the duty of good faith and fair dealing. Recall the Golden Rule: Do Unto Others as you would have them do Unto You.
- A prohibition on self-dealing is an extension of the overall fiduciary duty partners owe to one another. In this context, self-dealing means a partner cannot seek to improve their personal financial situation at the expense of the partnership’s financial health.
General and Limited Partnerships: Partner Roles and Liability Differences
A general partnership is possible when two or more people operate a business together. In many general partnerships, the partners operate the business in close relationship with one another. Each general partner maintains an equal stake in the management of the business. A general partner is personally liable for debts incurred by the business, as well.
On the other hand, a limited partnership is made up of at least one general partner and one or more limited partners. A limited partner may be an individual who contributes capital or ideas to a business but does not partake in the day-to-day decision-making or operations of the company. A limited partner cannot be held liable to any extent beyond their individual financial contributions to the business.
Disputes among general partnerships arise from conflicts over business decision-making and unequal profit distribution. To resolve these issues, partnership agreements should clearly state how profits and losses will be shared and how decision-making responsibilities will be divided among partners.
As for limited partnerships, a main cause for concern among limited partners relates to being at the mercy of a general partner’s decision-making. Limited partners have no day-to-day authority over the business’s operations. Resolving these types of disputes often involves a limited partner serving in a role where general partners’ actions can be audited, as well as holding regular partner meetings to hold general partners accountable for their decision-making.
Types of Partnership Disputes We Handle
We handle all types of partnership disputes in New York City. This includes (but is not limited to) disputes involving issues such as:
Borrowing and Outside Equity
Disputes over borrowing and outside equity often arise when partners disagree about the business’s financial direction. One partner may want to seek external investment to fund growth, while another may oppose giving up equity or taking on debt. These disagreements can create tension, especially if the partnership agreement does not clearly define how such decisions should be made. Resolving these disputes often involves reviewing the partnership’s governing documents and negotiating a mutually acceptable financial strategy.
Breach of Fiduciary Duties or Duty of Care
As mentioned earlier, partners owe each other fiduciary duties. Breaches of these duties, such as a partner prioritizing personal gain over the partnership’s interests, can lead to significant business disputes.
Capital Contributions and Investments
Disputes over capital contributions and investments can arise when partners disagree on how much each partner should contribute or when one partner fails to meet their agreed-upon obligations. These disputes are particularly common in partnerships where one partner handles daily operations while another provides the bulk of the financial investment.
Distribution Rights and Partner Compensation
Disputes over distribution rights and compensation often stem from differing views on how profits should be shared. When one partner feels their contributions are undervalued or that distributions are unfair, tensions can escalate quickly. These disputes frequently require an analysis of financial records and the partnership’s governing documents to determine the appropriate course of action.
Partner Negligence and Liability
When a partner’s negligence harms the partnership, it can lead to serious disputes. For example, a partner’s mismanagement of resources or failure to fulfill professional obligations can expose the partnership to legal or financial risks.
Ownership and Control Rights
Ownership and control rights disputes typically involve disagreements about decision-making authority or the division of ownership stakes. These disputes can arise when one partner seeks to make unilateral decisions or when the partnership agreement lacks clear governance guidelines.
Again, these are just examples. As mentioned above, partnership disputes can involve an extremely wide range of issues, and the options available for resolving them vary from case to case. Daniel Knox can assist with identifying all potential claims and defenses in your dispute. Then, he can help you make informed decisions about how best to proceed.
Seeking an Account Before Filing a Partnership Lawsuit
Generally, before a business partner files a lawsuit against another partner, the partner must provide a full accounting. The accounting involves a court reviewing a full list of a partnership’s commercial transactions. After hearing arguments from all sides, a court can divide assets, debts, and interests in a manner it deems fair. An exception to this rule applies when the dispute involves a matter that can be resolved without a full examination of the partnership’s financial history.
Partnership Agreement Clauses Which Help Avoid Disputes
Well-drafted partnership agreements offer crucial advantages in helping partners prevent or resolve disputes. A profit and loss allocation is a method of dividing a partnership’s income and losses among partners. The specific circumstances of each partner, many times reflecting day-to-day involvement in the business, financial contributions, or ownership percentage, often determine how profits and losses are divided among partners.
An exit provision provides the means by which partners can end a partnership agreement or leave the partnership altogether. The specificity of an exit provision in a partnership agreement provides clarity and forewarning to each partner about what to expect if a partner decides to exit early. Clearly communicated expectations regarding a departure from the partnership go a long way towards avoiding disputes.
Potential Remedies in NYC Partnership Disputes
When facing a partnership dispute, it is important to carefully consider the remedy (or remedies) you wish to pursue. Is there hope of (and a mutual desire for) reconciliation? Or is it time for you and your business partner to go your separate ways? The answers to these questions will determine how best to approach your dispute—not only in terms of the means of dispute resolution but also in terms of viable remedies. Broadly speaking, potential remedies in partnership disputes fall into three categories:
Injunctive Relief or Specific Performance
Injunctive relief or specific performance is often sought when immediate action is needed to prevent harm to the partnership. For example, a court may issue an injunction to stop a partner from taking unauthorized actions or require a partner to fulfill their contractual obligations. This remedy is particularly useful in disputes involving breaches of fiduciary duty or improper use of partnership assets.
Monetary Damages
Monetary damages are a common remedy in disputes where a partner’s actions have caused financial harm to the business. These damages can compensate the partnership for lost profits, misappropriated funds, or other financial losses. In many cases, proving the extent of the harm requires thorough documentation and expert analysis.
Dissolution of the Partnership
When disputes are irreconcilable, dissolving the partnership may be the best option. Dissolution involves winding up the business, distributing assets, and settling liabilities. While this remedy marks the end of the partnership, it provides a clear resolution and allows partners to move forward independently. The dissolution process must be carefully managed to ensure compliance with New York real estate laws and business regulations.
Of course, an amicable resolution is also possible; in many cases, it will be in all parties’ best interests to target a settlement that keeps the partnership intact. Daniel Knox can help you decide how to proceed and then take all necessary and appropriate legal steps on your behalf.
Schedule a Confidential Consultation with NYC Partnership Dispute Lawyer Daniel Knox
If you would like more information about our partnership dispute practice in New York City, please get in touch. To schedule a confidential consultation with Daniel Knox, please contact us today.