You can sue your business partner when their actions cause damage to the business. The legal ground for suing a partner is when there is negligence, abandonment, or breach of contract.
A partnership is an excellent way to steer a business in the right direction. It enables partners to achieve their long-term goals effortlessly with the right corporation. However, partnerships come with challenges that can undermine your relationships. One of the instances that can cause misunderstandings is when a partner does something that affects the company’s reputation.
If you’re having a legal battle with your business partner or planning to sue your partner, here’s a quick guide.
Are Partners in a Partnership Personally Liable?
Partners in a partnership are liable depending on the type of partnership and the level of their personal participation in the business. Here are different types of partnership and their liability.
General Partnership
In a general partnership where several people own the business, all the partners are liable. In this case, every partner is personally responsible for any of the business debts plus the court judgments.
Additionally, partners can sue each other to pay any business debt in full amount. However, the partners can also sue each other to make them responsible for their debt share.
Limited Partnership
But the case will be different if it’s a limited partnership where a limited partner doesn’t play an active role in the business. The limited partners are not held liable for any damages in the industry.
This is because the limited partners only contribute to the business and have less control over it. They give their executive powers, which protect them from being personally liable. So, a limited partner can’t pay any business debts using their assets. But there are instances when they can lose their financial investment in the business.
Limited Liability Partnership
A limited liability partnership offers limited personal liability to all partners. The partners in this partnership are not personally liable for the other partner’s damages. The association also protects all the partners from any debt against the partnership caused by a malpractice lawsuit against another partner. But any partner that is charged for malpractice is held liable.
Who Is Liable for Damages in A Partnership?
Since each partner has an obligation to conduct themselves in the best interest of the partnership, every member can be liable for damages of another partner. But this also depends on the type of partnership.
General Partnership
All the partners are liable for damages in the partnership. However, there are instances when each partner is held accountable for the losses in the partnership. So each partner should act responsibly, putting the partnership’s interests first since they can be sued.
Limited Partnership
The general partner is fully liable for the damages in the business. The limited partners may only lose their financial contributions to the business in case of debts. Remember, this type of partnership makes the other (limited) partners surrender their executive powers to a general partner held accountable for the business.
Limited Liability Partnership
Things are run differently in a limited liability partnership with owners, employees, and members. The business owners are held responsible for any business damages. The managers, members, or employees can’t be held liable for any damages or debts the business incurs.
What Is a Breach of Partnership?
A breach of partnership is when one of the partners violates the partnership agreements. Remember, before forming a partnership, it’s best to develop a formal partnership agreement. This agreement contains the duties of each partner in detail.
Any partner can breach one of the terms in the agreement, which requires them to be held accountable. When a partner breaches the contract, the remedies for breach of contract that can be taken against them include;
- Expulsion from the partnership
- Suing the partner
- The partner may also pay for liquidated damages
- Negotiating with other partners out of court.
