Blog Details

If two or more parties come together and agree on mutual terms to do business and share profits and losses, a relationship is formed. This type of business relationship may be between individual to individual, business to business, business to business, and business to business. According to the Indian Partnership Act, the agreement is compulsory. It may not be in writing, but a written agreement is more advantageous because it allows taking legal action if the contract is infringed. It is also necessary to register with a company. It can not sue its partners or other individuals in the unregistered firm's case. If the other partners break the agreement, they will take legal action against him.

If the business partner is found to commit a fraudulent act like embezzlement or transfer of business assets for his use; participation in the disclosure of the business 'intellectual property or termination of carrying out his obligations, legal action may be taken against him.

Breach Effects

Business partners usually participate in decision-making, and if one partner breaks an arrangement, the consequences can be devastating for a company. You might not be able to use the money from your company, make personnel decisions or invest capital without your partner's consent. Some breaches, such as a partner who diverts business funds or sells the business without your permission, will almost instantly tank your company.

Contract Clauses

A well-crafted Relationship Agreement will include provisions on how a contract violation is treated. For example, your partner might have a certain number of days to cure the violation. Your operating agreement and incorporation articles can also provide for procedures to remedy a breach. For instance, you and the other partners might be able to vote to remove a partner who has broken an agreement. However, if you do not have legal contracts covering how a violation is treated, you will have to rely on breaches of contract laws by your state.

Remedies Against Breach

If there is an infringement of your relationship agreement with a business partner, you can take advantage of many different legal remedies.

Expulsion from Company

Unless the Partnership Agreement addresses dismissal, you can not expel a Partner without dissolving the partnership, except for violation. That will entail the formation of a new partnership without the expelled member and the creation of a new partnership agreement, except for two-person partnerships. Nevertheless, several relationship arrangements make allowance for dismissing a breaching partner and continuing the relationship without the expelled partner. You will carry out the expulsion in good conscience, as in reaction to a significant breach of the relationship agreement. Removal from bad faith may cause the departing partner to sue the partnership for damages. Follow the procedure and obtain legal advice before any expulsion proceedings begin. Expulsion by the other party would rarely be without any sort of financial protection, even though they were in breach.

Liability for Breach

You may sue a partner who violates the partnership agreement, regardless of whether you expel him from the partnership or not. If a partner walks away from the relationship, his conduct is not a violation of the partnership agreement unless the partnership agreement allows for a defined term and the leaving partner walks away earlier than provided for in the agreement. Except in these situations, if the existing partner may prove that he has good reason to leave the partnership, he can escape liability. Other forms of infringements, such as misappropriation of partnership properties, cause you and other non-infringing partners to prosecute the offending partner for compensatory damages. The amount of damages will be the real losses of the partnership, minus the financial interest of the leaving partner in the partnership. This may or may not be the best choice, depending on how big the business is and how severe the violation is.

Seek Liquidated Damages

Some partnership agreements contain liquidated damages clauses which provided any partner harmed by the violation of another partner with a specific amount of monetary damages. The courts only extend liquidated damages provisions where they are fair in the light of real or expected damages in cases involving partnership litigation. For example, courts can not enforce a liquidated damages clause which provides for the breakup of the partnership and compensation to any partner to an amount less than the investment stake of that partner in the partnership. Where the court finds a liquidated damages provision void, the court can then grant an aggrieved party compensatory damages. The party which wins will try to implement the court's judgment. That can be tricky.

Settlement Between Parties

A negotiated settlement provides the possibility of maintaining your business relationship with your partner. Written settlement agreements are just as binding as other contracts and can be enforced by courts. Although you can have to make compromises with your husband to obtain his settlement deal, you may escape a costly and time-consuming legal battle. Additionally, you may consider filing a case against him and then agreeing to settle on terms favourable to your interests. Settlements are also an unlikely option since litigation and legal expenses escalate exponentially and are seldom cost-effective and provide no assurance that damages will be paid. It is always a risk to put cases before the court, which is why mediation is so common.

Dissolution of partnership firm

If the partner discovers that the other partner cheats, he can dissolve the firm. Firstly, he will give the notice of his readiness to dissolve the company to the partner. The court may order the dissolution under Indian Partnership Act Section 44. If the partnership is terminated, the partner may be held responsible for the acts taken by the third parties.

Conclusion

A partnership is a prevalent form of enterprise in the region. It has other benefits for the business. This Act is comprehensive since it covers all aspects of the partnership, including the legal remedies that should be available to each partner.