Can I Sue My Business Partner for Abandonment?

What Does Business Partner Abandonment Mean?

Abandonment is a form of partnership dispute, which means that there has been a breakdown in the relationship between the partners. A legal definition of abandonment is "voluntary withdrawal from the association of the partnership." In most cases, this theory involves one partner essentially leaving the business behind to focus on something else. It can be used to sue to re-distribute shares of ownership because they were not agreed to at the start of the business relationship . Some scenarios where the courts will recognize buyouts for abandonment include when: (1) The dissociated partner completely stops doing business; (2) The dissociated partner decides to become a competitor with the same level of financial investment as the original business; and (3) The oppositional partner decides to become a non-competitor in his or her work as well, therefore effectively abandoning the other partner. In order to prove a case of business partner abandonment, you have to show that you didn’t receive any profits from your partnership and that you suffered financially from the abandonment. Further, you must show that, as a result of your current financial situation, you cannot operate the business without the other partner.

The Grounds for Suing a Business Partner

Legal Grounds For Suing Your Business Partner For Abandonment
When one partner chooses to abandon the other(s), a dissolution of the partnership or corporation must take place in order to modify the original agreement between the partners. This is usually a last step measure that may not involve getting an attorney to help you complete the terms of the dissolution. This, however, is not always the case. If the partner that leaves fails to assist in the process of determining how the company will continue without him/her, or if that person continues to break the terms of the original partnership agreement, litigation may indeed be the necessary course of action.
Any number of legal issues can factor into your decision to pursue a lawsuit against your partner. If he/she continues to benefit from the profits of the company after leaving and refuses to relinquish his/her ownership, then you may have grounds for a case. The same can be said if your business partner continues to interfere with the company’s activities even after leaving. The interference can be accomplished in person, via e-mail or by phone. It’s also a possibility that your partner will continue to draw pay from the company even while not engaged in the everyday tasks.
In order to sue your partner for abandoning the partnership, you must be able to present evidence showing how you were unjustly harmed by his/her actions. This could be done through accounting and other documentation proving how the business was not able to profit or even survive because of the abandoned duties. You’ll also need to show how your former partner is a hindrance within the company despite multiple attempts on your part to address the concerns.

How Abandonment Impacts Your Company

Effect of Abandonment on Your Business
Under Indiana law, the business entity can be a "going concern" even if a partner is abandoning his or her duties. But the operations of the business may suffer financially and operationally with the exit of a partner who disconnects himself or herself from the business. The partner may have certain capital accounts or shares of ownership in the business that the remaining partners must purchase or redeem from the abandoning partner. This could leave the company financially unstable because it now has fewer dollars coming in without the investing capital from the departing partner. Further, if the company is an operating company, if the partner is one of the main reasons why the business is successful or making money, the exit of the partner could mean that the business could lose money. Depending upon the partnership agreement, additional funds or shares of ownership may need to be purchased from new investors or partners.

What To Do Before You Start a Lawsuit

The best first step to consider is whether or not you have a written agreement with the partner and whether that agreement includes a specific provision for what happens if one partner abandons the company. Many written agreements do contain such a provision. If you do not have a written agreement, you may be able to claim an abandonment by the other partner based on conduct by the partner that equates to a voluntary, complete relinquishment of her rights to continue as a partner in the business by her actions or affirmatively giving up her rights.
If you have no written agreement and no pre-existing terms indicating otherwise, the law assumes that each partner had an equal part of the ownership and had an equal right to participate in the company. So if you leave and effectively give away your 50% interest to your former partner, you have abandoned your company interest.
If you have no agreement, abandoned yourself from the company, but have not informed your partner that you intend to cease your participation in the business and that you are willing to give up your partnership interest, you have not technically abandoned. You may still be entitled to your share.
A failure to give proper notice to your partner that you are ceasing your participation is something the partner can sue for independently. This is based upon logic that each partner expected to rely on the other to give appropriate notice in such a situation and that you relinquished your rights if you intentionally didn’t give that notice.
A conventional way to avoid problems in the event of an abandonment of the partnership is to expressly provide for the remedy. In the absence of an express way to do so and an express agreement about compensation for your interest, you may not be entitled to compensation upon your alleged abandonment.
If you have physical property belonging to the company and you have taken the property into your possession during your time of working in the company, then the other partner can sue you to get the property back. Abandonment means that you have completely given up your rights to your former assets and property. If you take property with you, then you have not abandoned the property.
Each situation is different and the disposition of the matter may vary based upon the circumstances.

Suing a Business Partner: What Happens?

If pursuing a legal course is the most prudent action and partner abandonment appears to have occurred, the business partner will need to consult an attorney about filing a lawsuit in a timely manner. Under most state laws, lawsuits must generally be filed within a set time following the alleged breach of a business contract – including a partnership. In many instances, criminal action may also be appropriate if the partner’s actions serious enough to warrant criminal charges. While it is possible for an individual to file a lawsuit without the assistance of an attorney, it is always advisable to secure representation to ensure the legality of the documents and the correct procedural steps are followed.
The first step in the legal process is for the partner to determine the correct type of relief (damages) that should be requested in the lawsuit. This decision should ideally be made in consultation with an attorney. The partner will then need to ascertain the proper legal forum in which the lawsuit should be filed. This can often be a complex question, particularly if more than one state is involved, as it involves determining the proper venue and jurisdiction. In addition to state courts, there are also numerous federal courts throughout the country, which may also be available depending on the claims being asserted. Federal courts are vested with less power than state courts, and generally, actions or claims against businesses involve only state law (not based on a federal law). Even if a case is "removable" to federal court, an attorney will be able to provide a recommended strategy for the best choice of forum and reasons for the recommendation .
Once the action is filed, a defendant once again has the opportunity to assert the possibility that personal jurisdiction may not exist. However, in this instance, the risk is greater than in the initial decision as the court may ultimately decide to retain jurisdiction over the matter. A defendant who attempts to remove a case to the federal court based on the alleged existence of diversity jurisdiction can be foreclosed from subsequently removing the matter to state court, so again, having an attorney at all stages of this process is prudent. The defendant has thirty days from receiving the complaint to remove the case; however, any time period which the defendant was served outside of the state does not count towards the thirty days. Once the appropriate jurisdiction is determined, the plaintiff (the partner filing the lawsuit) will need to serve (give) the lawsuit to the defendant partner. Service of the lawsuit is normally made by either personally delivering the papers to the defendant or by mail. For example, a California plaintiff can file a lawsuit for breach of contract in California and serve it on the defendant in Utah through registered mail. Once the defendant has been served, he or she will have a set period of time (typically 30 days) to file a response to the plaintiff’s complaint. Failure to respond to the complaint within the specified time period may result in the court granting a default judgment in favor of the plaintiff. (A default judgment can occur if the defendant fails to respond, even if he/she is served.)

The Outcome of the Lawsuit

After successful litigation, you can expect one of several outcomes, depending on the circumstances. First, you may receive a money judgment, which is an order for payment of a sum of money from your partner. Second, you may be dissolved from the partnership. Third, you may receive a financial settlement from the other partner in a court-ordered settlement agreement. These are just a few of the possible outcomes. Every situation is different, but the legal process provides avenues for recovery of losses and other remedies to help business partners make it through the dispute process.

Ways to Avoid Being Abandoned by Your Partner

A proper partnership agreement is the best insurance against an undesirable split. While such an agreement will not cover all bases it will likely help strengthen your business and minimize future disputes.
At a minimum, a formal agreement should address: contributions to the business, compensation, management roles, dispute resolution and termination provisions. Each partner should regularly report the financial condition of the business to the other partners. Regular meetings should serve to keep everyone on the same page. Where the partnership has a large staff, it may be appropriate to appoint a professional project manager to deal with day-to-day operations . Such a person could alleviate many potential disputes. Partners should know their rights and obligations and the means by which they can enforce those provisions. Partners need to keep their lives separate from the operation of the business. Each should develop a network of like-minded business individuals with whom they can explore other opportunities. While you can sue your business partner for abandonment, nothing can diminish the pain of a broken partnership. Proper planning in advance of the storm can and should minimize damage to the business and the partnership. It is appropriate to seek legal advice in making any business plans for a partnership dispute.