When Trust Breaks Down in Business
A business partnership can be a powerful force when both parties are aligned and committed to the same goals. But when a partner violates your agreement or acts in bad faith, the fallout can be financially and emotionally devastating.
Whether your partner is siphoning off funds, making unauthorized decisions, or simply failing to meet their obligations, it’s critical to know your rights and take strategic action. In California, business owners have several legal remedies to hold partners accountable and protect their interests.
This blog breaks down what you should do if your business partner breaches your agreement and when it may be time to pursue litigation.
Step 1: Review Your Partnership Agreement
Start by reviewing your written agreement, operating agreement (for LLCs), or shareholder agreement (for corporations). These documents should outline:
- Each partner’s responsibilities and obligations
- Profit-sharing structures
- Decision-making protocols
- Dispute resolution procedures
- Conditions for dissolution or removal
If you don’t have a written agreement, California’s default rules under the Uniform Partnership Act (RUPA) or Corporations Code will apply, which can lead to complicated outcomes if disputes arise.
Step 2: Document the Breach
Gather evidence of the violation. This can include:
- Financial records
- Emails or text messages
- Meeting minutes or notes
- Witness accounts
The more detailed and organized your evidence, the stronger your case will be—whether you pursue resolution informally or through the courts.
Step 3: Attempt a Resolution (If Appropriate)
If the breach is relatively minor or the partnership is otherwise functional, consider trying to resolve the issue directly. Options include:
- Internal meeting to discuss the breach
- Mediation with a neutral third party
- Demand letter from an attorney outlining the violations and next steps
In some cases, addressing the issue early can salvage the relationship or avoid unnecessary legal expenses.
Step 4: Consider Legal Action
If informal resolution fails or the breach is serious, it may be time to pursue legal remedies. In California, you may be able to:
1. Sue for Breach of Fiduciary Duty
Partners owe each other a fiduciary duty of loyalty and care. If your partner acted in their own interest at the expense of the business, you may have a strong claim.
2. File a Breach of Contract Lawsuit
If there’s a written agreement, you can sue for breach of contract and potentially recover:
- Monetary damages
- Injunctive relief (to stop ongoing harm)
- Removal of the partner
3. Seek Dissolution of the Business
If the relationship is irreparable, you may file for judicial dissolution under California Corporations Code §1801 or related statutes depending on your entity type.
When to Involve a Lawyer
Business partner disputes can escalate quickly and threaten your company’s future. An experienced business litigation attorney can:
- Interpret your operating or shareholder agreement
- Assess liability and legal strategy
- Send effective demand letters
- Represent you in mediation or court
At Shaumyan & Derbarseghian, LLP, we have extensive experience resolving complex partnership disputes. We understand both the legal and emotional toll these conflicts can take, and we work to protect your investment and your reputation.
Don’t Wait Until It’s Too Late
Ignoring or delaying action when a partner violates your agreement can cause serious damage, both financially and legally. The earlier you act, the more options you have for resolution.
If you believe your business partner is acting against your interests, contact us today for a confidential consultation. We’ll help you assess your options and determine the best path forward.
