When you enter into a business partnership in California, you place your trust in the other party to prioritize teamwork and work toward your shared goals. When they break the terms of that agreement, the effects can interrupt operations and reduce profits.
While suing a business partner is rarely the first choice, it can sometimes be necessary when it puts your company assets and years of hard work at risk. Understanding how to pursue litigation can help safeguard your business from being compromised by the actions of another.
They started a competing business without consent
In California, your business partner usually cannot compete with the partnership while your agreement is still ongoing. When they compete in secret while using shared resources or taking your clients, they are breaking your partnership agreement.
Restrictive covenants during the partnership and agreements on how to divide assets if the partnership ends, are important and enforceable. Even if your partner leaves, they still cannot use your trade secrets or break valid contract terms that limit competition after departure. You can hold them responsible if they do not follow these non-compete terms.
There was a breach of fiduciary duty towards you
Even if your partner can leave at will, they still owe ethical obligations to you and the partnership, including good faith, care and loyalty. If they put personal interests first, especially before their duties have ended, they can harm the partnership in the process.
You can file a claim against them as long as you can prove that their breach of a fiduciary duty resulted in damages on your part. Depending on the circumstances, recovery may include actual damages and, if the conduct involved malice or fraud, punitive damages.
You were excluded from a major decision
When your business partner locks you out of bank accounts, leaves you out of key meetings or blocks access to company systems, you can feel powerless. Aside from being frustrating, one-sided choices generally do not honor the partnership and actively hurt it.
If you both have equal rights on decision-making in your agreement, you can hold your partner on account for excluding you. Acting quickly and seeking legal guidance can help you protect your place in the business.
Creating a clear path forward
Pursuing a lawsuit against a business partner is not about personal conflict, it is also about professional preservation. By taking the necessary legal steps, you are drawing a line to protect your interests and ensure the long-term stability of your career.