A partnership agreement establishes the roles, responsibilities, administrative processes and financial operation of a business partnership. If any partner fails to live up to the terms of this contract, the other partners can seek legal recourse.
Business owners can take these steps in the case of a dispute where a partner has breached a business contract.
Invoke liquidated damage clauses
Liquidated damage clauses in a partnership agreement establish specific monetary damages that arise if a partner breaches the contract. However, for the court to enforce these clauses, the actual damage must reflect the agreed-upon damages. Otherwise, the judge may find that the contracted damages are unreasonable and award a lower amount of compensatory damages.
Sue for breach of contract
If financial damages resulted from the breach of contract, the partner in question may hold legal liability for these damages. Depending on the amount of damages and the person’s stake in the business, this option may allow for recouping of the costs associated with the breach.
Keep in mind that just leaving the business does not in and of itself constitute a breach. Even if the agreement states a specific time period for the existence of the partnership, the person can argue that he or she left early for cause.
Unless the terms of the agreement specifically indicate that a partner who breaches the agreement will receive expulsion from the partnership, the other partners cannot take this step without dissolving the business. However, even when the contract establishes the right to expel a partner for this reason, he or she will likely have a financial claim to part of the business.
The appropriate course of action depends on the nature of the breach, the value of the business, the future of the partnership and other factors. In addition, it may also depend on Illinois state law and the terms of the partnership agreement. Consider starting the process by attempting to negotiate a favorable settlement.