Breach of Partnership and Its Legal Consequences
Sometimes a dispute between two business partners can happen especially when one of them has violated a certain agreement. In this situation, a business should be dissolved to expel a partner, unless that the terms and conditions in expulsion is included in the partnership agreement.
According to lawyers, the condition of expulsion should be addressed in all partnership agreements, allowing business co-owners to expel someone who has done something wrong against the company.
Because expulsion involves many legal issues and ramifications, here are some of the circumstances which must be considered:
• Bad Faith Expulsions
When a partner can prove to the court that his co-partners have taken advantage and violated the partnership agreement and that the expulsion is done in "bad faith", his discharge is considered illegal.
• Illegal Expulsion
When the expulsion involves discrimination based on gender, sexual orientation, age, disability, religion, race, and national origin, the courts will consider this as unlawful.
• At Will Partnership
In this legal arrangement, the expelled partner and those who remain are not liable for a breach of contract.
• After Expelling a Partner
If there is an expulsion clause in the partnership agreement and the grounds for discharging a person is justified, a business can continue its operation even if one or more partners are removed.
• Paying the Share of the Departing Partner
Anyone who will leave the business through expulsion (if the operation will continue), should receive payment for his share. Usually, the amount will depend on the agreement which is made in advance.
If a business is dissolved as a way to expel a partner, all its assets should be liquidated and distributed to pay the shares of other partners or pay the companys debts and liabilities.
However, if the dissolution has not yet been completed, the "departing" partner still has the authority and the right to make decisions that will affect the business.
• Unlawful Dissolution
If there is a contract stating that the duties in the partnership agreement should be performed in a specific duration, but a partner dissolves the deal even before the period ends, his co-partners can file a lawsuit against him for breaching the contract.
• Partner Backing-out from the agreement
Under the Revised Uniform Partnership Act, a partner who wrongfully backs out from his partnership deal may be sued by his co-partners for breaching the contract. According to lawyers, most states follow this law.
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