Business Partner Competes

What To Do If a Business Partner Competes with the Partnership

Trust is the foundation of every business relationship. Every person hopes their business partners are honest, acting in good faith and for the greater good of the partnership. A partner opening a business competing with the partnerships violates this fundamental trust. 

 

Can you take action against your business partner for opening a competing business? What remedies are available to you against your competing partner? How can a commercial litigation lawyer help you with legal action against them?

 

This article will answer all these questions and explain how a commercial litigation lawyer can help. 

 

Can Your Business Partner Compete with the Partnership? 

 

A partnership agreement determines the rights and responsibilities of business partners. Many partnership agreements contain a non-compete clause. It prevents a party from competing within an industry or a specific line of business in a particular geographical area for a time.  

 

A non-compete must be reasonable with respect to its geographical scope, time, and other conditions to be enforceable. Your business partner cannot legally open a competing business contrary to the conditions of an enforceable non-compete clause in a partnership agreement. 

 

Further, business partners owe fiduciary duties to each other and the partnership. These duties require them to act honestly, in good faith, and in the best interests of the partnership. 

 

A business partner may be in breach of their fiduciary duties by opening a competing business, especially if they are divided between acting in the partnership’s best interests or those of the competing business. This is typically known as a conflict of interest. 

 

There is more likely a breach of fiduciary duty if the competing partner hides the existence of the competing business and uses the partnership’s resources or confidential information to the benefit of the competing business.  

 

In the absence of a written partnership agreement, section 30 of Ontario’s Partnerships Act (the “Act”) prohibits a partner from carrying on a competing business of the same nature as the partnership firm without other partners’ consent. The partner violating section 30 of the Act must account for and pay over to the firm all profits they make in the competing business.

 

Based on the above, a partner in a business could be violating their contractual, statutory, and fiduciary duties by opening a business competing with the partnerships. If a competing partner is held liable for such breaches, the other partners and the partnership itself can seek remedies including: 

 

  • Accounting and payment of profits to other partners;
  • Economic and non-economic damages; 
  • Ejection of a partner from the partnership;  
  • Dissolution of the partnership; and 
  • Orders to do or avoid doing something, are known as injunctions. 

 

Before using your business partner, you should consider sending them a demand letter through a lawyer. In the demand letter, your lawyer will briefly summarize events, state your legal position and propose an offer to settle the matter outside of court. However, in some cases, a lawsuit is the only option. 

 

What To Do About a Business Partner Competing with the Partnership 

 

Before using your partner, you should review your partnership agreement. Most modern partnership agreements allow or require partnership disputes to be resolved using alternative dispute resolution processes such as arbitration, mediation, or a mix of two.

 

If your partnership agreement contains a dispute resolution clause, you may be required to use the dispute resolution process mentioned in it. You can proceed with commercial litigation if there is no partnership agreement or the dispute resolution clause does not exclusively restrict the parties to the arbitration. 

 

Whether your partner breached the partnership agreement, statute, or fiduciary obligations by opening a competing business, you would need to prepare, file, and serve a claim to start a lawsuit, otherwise known as commercial litigation. 

 

You can also request the court to grant a temporary injunction to stop your partner from continuing their other business until the lawsuit is resolved. 

 

While it may seem straightforward to sue your partner without legal representation, there are many technical and substantive rules you must follow throughout the legal proceedings or risk losing your case. 

 

For example, failure to plead your case properly in your claim, meet important deadlines, or make strong legal arguments could get your case dismissed and some of the competing partner’s legal costs awarded against you. 

 

The alternative to self-representation in commercial litigation is consulting and hiring a commercial litigation lawyer to fight for you in court. 

 

How a Commercial Litigation Lawyer Can Help

 

A lawsuit between partners in a business can impact its future. If you’re planning to sue your business partner for opening a competing business, a commercial litigation lawyer can help maximize your chances of success in many ways.   

 

A commercial litigation lawyer is a trained expert in navigating the legal system, negotiating settlements, and advocating in court. You can consult with a lawyer at any stage of the process to develop a legal strategy based on the facts and circumstances of your case. 

 

Depending on what is at stake for your business, the cost of a commercial litigation lawyer’s expertise and guidance is a cost-efficient way to ensure you get the results you want while minimizing the risks of losing your case. In most cases, you can seek some or most of your legal costs if you win. 

 

Conclusion

 

You must act immediately if your business partner has started a competing business. They could be using the partnership’s intellectual property, stealing its clients, or using their fiduciary role to benefit the competing business. Any delay in pursuing your legal remedies can be costly for the partnership. 

A commercial litigation lawyer can help you bring a claim against your partner for damaging your business by operating a competing company. They can assist you in holding your business partner accountable and protect the partnership’s best interests. 

 

Contact Us

 

If your partner is running a business competing with the partnerships and you want to know more about your rights and options, our team of experienced commercial litigation lawyers at Achkar Law can help. Contact us by phone toll-free at  +1 (800) 771-7882 or email us at [email protected], and we will be happy to assist.

 

 

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