Partnership Dispute Resolution: Control, Buyout, and Exit Strategies

Under the Uniform Partnership Act (UPA) and the Revised Uniform Partnership Act (RUPA), adopted by most states, each partner owes the partnership a duty of loyalty and a duty of care. Violations of these duties, including self-dealing, unauthorized competition, or misappropriation of assets, support claims for breach of fiduciary duty, an accounting, and disgorgement of profits. Partners who suspect a co-partner has engaged in unauthorized transactions or misappropriated assets should consult partnership dispute resolution counsel immediately to preserve evidence and evaluate the available remedies.

Under RUPA, each partner owes a duty of loyalty that includes an obligation to account for profits derived from partnership business and a prohibition on competing without consent. The duty of care under RUPA requires partners to act in a manner they believe is in the best interest of the partnership, and partners who make reckless decisions causing financial harm are personally liable. Partners who believe a co-partner has breached fiduciary duties should seek guidance from breach of fiduciary duty counsel to evaluate whether to seek an accounting, injunction, or damages.

A partnership agreement should specify each partner's ownership percentage, capital contribution obligations, income draw rights, voting rights, and authority to bind the partnership with third parties. Management authority provisions define which decisions require unanimous consent, which require majority approval, and which fall within a managing partner's sole authority. Partners whose partnership agreements are ambiguous on key terms should consult partnership fraud counsel to assess dispute risk and consider whether an amendment could reduce the likelihood of future conflict.

A partnership agreement is a contract, and a partner who fails to fulfill its obligations is liable for breach of contract, including failure to make required capital contributions or competition in violation of a non-compete provision. Courts enforce partnership agreements as written and supply missing terms from the applicable state statute, but will not rewrite an agreement because one partner views it as unfair. A partner who believes a co-partner has materially breached the partnership agreement should consult breach of contract counsel to evaluate whether to seek specific performance, damages, or dissolution.

A buy-sell agreement governs when a partner's interest may be sold, the process for determining the purchase price, the payment terms, and when a remaining partner may invoke a forced buyout. Common triggering events include a partner's death, disability, retirement, or voluntary or involuntary withdrawal following a breach of fiduciary duty. Partners who face a buyout demand or who wish to invoke a buy-sell agreement should work with business dispute counsel to ensure the process complies with the agreement's terms and the valuation methodology protects their interests.

Under RUPA, a partnership may be dissolved by the express will of all partners, by judicial order finding that another partner has engaged in wrongful conduct materially affecting the business, or by operation of law. Upon dissolution, the partnership must wind up its affairs, satisfy obligations to creditors, and distribute remaining assets to the partners. Partners who believe the winding-up process is being conducted in bad faith should seek guidance from business formation counsel experienced in partnership wind-downs to assert distribution rights.

Mediation is particularly effective in partnership disputes because the parties share a history and a common interest in preserving business value, and creative solutions are available, including restructured governance arrangements and phased buyouts. A skilled mediator can help partners identify the underlying interests driving the conflict and structure a resolution that minimizes the financial and reputational damage that litigation would cause. Partners who have attempted direct negotiation without success should engage dispute resolution counsel experienced in partnership mediation before initiating litigation.

Partnership litigation typically involves claims for breach of the partnership agreement, breach of fiduciary duty, an accounting, injunctive relief, and dissolution. Courts adjudicating partnership disputes have broad equitable authority, including the power to appoint a receiver, to order a judicial dissolution, and to award attorney fees where the applicable statute or agreement so provides. Parties who have been unable to resolve a partnership dispute through mediation should consult civil settlements in lawsuits counsel to evaluate the litigation claims and assess whether a negotiated resolution remains achievable before trial.