Running a business is often compared to a marriage. You rely on trust, shared vision, and—perhaps most importantly—a solid contract to keep things moving forward. But what happens when that trust is broken? Discovering that a business partner has violated your partnership agreement is more than just a professional headache; it feels like a personal betrayal.

Whether they are making unauthorized withdrawals, signing deals behind your back, or neglecting their duties, immediate action is necessary to protect the company’s future and your personal investment.

Read the Fine Print: What Constitutes a Breach?

Before you change the locks or freeze bank accounts, you need to be absolutely certain about the terms of your written agreement. A “breach” can look like many things, but in New Jersey legal terms, it usually falls into one of three buckets:

1. Material Breach: This strikes at the heart of the agreement. For example, if your partner was supposed to contribute capital and didn’t, or if they are actively competing against the business.
2. Minor Breach: This might be a failure to perform a specific, smaller duty on time. While annoying, it may not be grounds for dissolving the partnership immediately.
3. Anticipatory Breach: This happens when a partner explicitly states they will not fulfill their obligations in the future.

If you are operating without a formal written contract, you are likely governed by the Revised Uniform Partnership Act (RUPA) or New Jersey’s default partnership laws. In this scenario, proving a violation becomes trickier but not impossible. You will need to rely heavily on implied duties, such as the fiduciary duty of loyalty and care.

Note: Fiduciary duty is a legal obligation to act in the best interest of the other party. You can read more about the general principles ofFiduciary Duty on Wikipedia.

Document Everything (Even the Small Stuff)

You cannot fight a legal battle on “he said, she said.” You need a paper trail. If you suspect your partner is siphoning funds or making unauthorized decisions, start gathering evidence immediately.

• Financial Records: Download bank statements, credit card receipts, and payroll logs. Look for transfers to unknown accounts.
• Communications: Save emails, Slack messages, and texts where the partner admits to actions or refuses to do their job.
• Witness Accounts: If employees have noticed erratic behavior or policy violations, document their observations discreetly.

This evidence is crucial if you eventually need to file a lawsuit or seek an injunction. Abusiness litigation attorney will use this data to build a timeline of the breach.

Resolution Option 1: The Direct Approach and Mediation

Litigation is expensive and public. Before filing a complaint, it is often worth attempting to resolve the issue internally, provided the breach isn’t criminal (like embezzlement).

Refer to the dispute resolution clause in your original contract. Does it mandate mediation? Mediation allows a neutral third party to help you facilitate a conversation. This is often the best route if you want to salvage the business relationship or negotiate a clean buyout without destroying the company’s value.

We have seen success inresolving complex shareholder disputes through mediation, preserving the business’s reputation while settling the conflict.

Resolution Option 2: Expulsion or Buyout

If the trust is irretrievably broken, you may need to remove the partner.

• Expulsion: Your partnership agreement might have an expulsion clause detailing how a vote can be taken to remove a non-compliant partner.
• Buyout: You can negotiate to buy their shares. However, if they are the ones who caused the damage, you must ensure the buyout price reflects the losses they caused the company.

Never attempt to “freeze them out” by cutting off their access to books or profits without legal counsel. This can backfire and give them a counterclaim for “minority oppression.” Always consult apartnership dispute specialist before restricting access.

Resolution Option 3: Litigation and Dissolution

When a partner refuses to negotiate or the theft/damage is significant, you may have to sue for damages or petition the court to dissolve the partnership.

In New Jersey, you can sue for:

• Compensatory Damages: To cover the money lost due to their actions.
• Recission: To cancel the partnership contract entirely.
• Liquidated Damages: If your contract specified a penalty amount for specific breaches.

Litigation is the “nuclear option,” but sometimes it is the only way to recover your assets.

Protecting Your Interests Moving Forward

If this situation has taught you anything, it’s that a generic template contract is rarely enough to protect you when things go south. Whether you are restructuring your current business or starting a new venture, ensure your governing documents are ironclad.

Properpartnership formation agreements should explicitly outline what constitutes a breach and the exact mechanism for removing a rogue partner. Don’t leave your financial future up to interpretation.