What to do when your business partnership breaks down

What to do when your business partnership breaks down

All disputes are unique, but there are common avenues that can help resolve a business partnership breakdown

Partnerships are often started in a flurry of excitement and optimism, but nobody anticipates that their business relationship may one day become a business partnership breakdown. However, the truth is that partnerships can deteriorate and break downs are common, so it’s important to understand how to navigate these waters if it happens to you.

What is a partnership?

A partnership is the relationship between two or more people (up to 20 people) who go into business together with a view of profit. In Victoria, partnerships are governed by the Partnership Act.

How do I identify the issues that are causing the problem?

It is first important to identify why the partnership has broken down and if it is reparable. Common causes of disputes may include:

  • Different goals for the company
  • Personality clashes 
  • Unequal contributions

Once you have identified the issue or issues at the heart of the breakdown, it is important to determine your expectations for a resolution. Having clear expectations can guide your response and assist with clear communication. 

What does the partnership agreement say?

Formal written agreement

A formal written agreement is your best defence against a business partnership break down. If you have an agreement in place, we recommend that you review it immediately. It may contain dispute resolution provisions or include provisions that deal directly with the issue in dispute. Having such an agreement in place can be vital to resolving a business partnership dispute. 

If you have a formal written agreement in place but are unsure of its contents, legal advice can assist you to understand the agreement and determine your rights. 

No formal agreement 

Even if you do not have a formal written agreement, it is still possible to resolve your business partnership breakdown. Evidence of an informal agreement can assist with resolving the dispute and may include such things as emails, letters, text messages, documents, and contemporaneous notes. Such evidence may:

  • Prove misconduct
  • Show joint objectives 
  • Demonstrate agreed procedures

If no agreement is in place the Partnership Act can provide guidance and assist in resolving the dispute.

Is communication important?

Once you have identified why the partnership has broken down, clear communication may be able to assist you in resolving the breakdown or dispute.

If possible and appropriate, setting up meeting to discuss the issue or issues can be constructive. However, though difficult, such a meeting should only be conducted in a manner removed from emotion. It is important to ensure that minutes or a comprehensive record of the meeting is taken for future reference, if required. 

Should I seek legal assistance?

If clear communication has proven unsuccessful or is not possible, it may be time to engage legal representation. Engaging legal representation does not automatically mean launching a court action. There are many other avenues that may help to resolve the issues. We can work out what course of action will best suit your circumstances, for example, drafting an appropriate letter to your business partner or assisting you in the alternative dispute resolution (ADR) process.

ADR is a form of dispute resolution where an impartial person helps the conflicting parties to discuss the issues and find a way to resolve the dispute. Typically, it is more cost and time effective than litigation, and can deliver a more flexible result.

The final word

If you are facing a business partnership breakdown, it is important to take the time to identify the issues, review your agreement, and try to find a way to discuss the issue. Engaging a lawyer is always an option and can often be highly effective, especially if you and your business partner can agree to an ADR process. 

With highly skilled lawyers working in commercial law, litigation and ADR, we can help you navigate your business partnership breakdown. Contact us to learn more.


This article was written by Zoe Pinch



DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can receive from marshalls+dent+wilmoth and other relevant experts.