Business partnerships rely on mutual trust and shared goals. However, when a business partner starts a competing business, that trust is violated, potentially causing significant harm to the partnership. Understanding your legal options in this situation is essential for protecting the partnership and your interests.
Can a Business Partner Legally Compete with the Partnership?
Most partnership agreements contain non-compete clauses that prevent partners from engaging in similar business ventures within a specified geographic area and time frame. These clauses, if reasonable and enforceable, prohibit business partners from operating competing businesses.
Additionally, partners owe fiduciary duties to each other, including acting in good faith and in the best interests of the partnership. A partner starting a competing business may breach these fiduciary obligations, especially if they misuse partnership resources, intellectual property, or confidential information to benefit their competing business.
In Ontario, if there is no formal partnership agreement, section 30 of the Partnerships Act also prohibits partners from engaging in competing businesses without consent from other partners. If a partner violates this rule, they must account for and pay over any profits they earned from the competing business to the partnership.
Remedies Available Against a Competing Partner
If your partner has violated a non-compete clause, breached fiduciary duties, or contravened statutory obligations, you can seek several legal remedies, including:
- Recovering profits made from the competing business
- Seeking economic and non-economic damages
- Obtaining an injunction to prevent further competition
- Expelling the partner from the partnership
- Dissolving the partnership if necessary
Dealing with Disputes in a Business Partnership
If a dispute arises because your partner has started a competing business, reviewing your partnership agreement is the first step. Many agreements include a dispute resolution clause, requiring the partners to resolve disputes through mediation or arbitration rather than immediately resorting to litigation.
If no such clause exists or if the clause does not limit you to alternative dispute resolution, you may pursue commercial litigation against your partner. A lawyer can help draft and file a demand letter to initiate negotiations before escalating the dispute to court. If necessary, you can seek a temporary injunction to halt your partner’s competing activities while the lawsuit proceeds.
How a Commercial Litigation Lawyer Can Help
A commercial litigation lawyer can provide essential guidance and representation in resolving disputes with your business partner. From evaluating your partnership agreement and fiduciary obligations to helping you navigate the legal system, a lawyer can enhance your chances of a successful outcome.
A commercial litigation lawyer can also negotiate a settlement, represent you in court, and protect your rights and the partnership’s interests. By working with legal counsel, you reduce the risks of errors in the legal process that could result in losing your case or facing costly penalties.
Conclusion
If your business partner is operating a competing business, you need to act quickly to protect your partnership. Whether they are violating a non-compete agreement, breaching fiduciary duties, or misusing confidential information, a commercial litigation lawyer can help you take appropriate legal action to hold your partner accountable and safeguard the partnership.
Contact Achkar Law
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 business partnership lawyers at Achkar Law can help.
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