Any recourse for partners breaking our partnership agreement?

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Any recourse for partners breaking our partnership agreement?

My wife and I formed a partnership with another couple. According to the partnership agreement, we would receive 50% of the net profits immediately for our participation in the business (tax returns, accounting, business plan, marketing strategy, etc.). However, my wife and I would not have any ownership in the company just yet. In lieu of us putting in any capital, we would acquire ownership based on our sales – $10,000 in sales gives us 10% ownership until we reach a max of $50,000 in sales and become 50% owners. A conflict developed between all the partners and the other couple have cut us off; basically took their ball and went home. Stopped paying us our share of the net profits. What recourse do we have? Do we need to sue them in small claims court?

Asked on February 3, 2011 under Business Law, Texas

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

If someone has violated a partnership agreement or other contractual obligation to you, then your recourse would be to sue them for what they owe you. Whether you sue them in small claims or other court, and whether you hire an attorney or sue them personally, will depend on (1) how much money is at stake, and (2) how complex the case is (which touches on whether you have a clear, easily proven written agreement or not; how accessible and reliable are the financials; etc.). Note that once you institute a lawsuit, you will access to the mechanisms or tools of "discovery," such as Notices to Produce Documents, Interrogatoris, and Subpoenas, which will let you double check financial figures, salaries, distributions, etc.


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