Your Partner Starts a Competing Business
Trust is the foundation of any successful business partnership. When a partner launches a competing business behind your back, that trust is shattered, and so, potentially, is the business you built together. You may be wondering whether what they are doing is even legal, and what you can do to stop it.
This article covers your rights under Ontario law, the legal remedies available to you, and the critical steps you should take right now to protect your interests.
Quick answer
In most cases, a business partner cannot legally compete with the partnership. Under section 30 of Ontario's Partnerships Act, a competing partner must hand over all profits from the competing venture. Partners also owe fiduciary duties to each other, starting a competing business commonly breaches those duties and can expose the partner to injunctions, damages, and profit disgorgement.
Act quickly: delay can cost you
Courts are less likely to grant urgent injunctive relief if you wait. If you suspect a partner is competing, seek legal advice immediately before more customers, confidential information, or revenue is diverted.
Can a business partner legally compete with the partnership?
In most cases, the answer is no. Business partners owe each other fiduciary duties, a legal obligation to act in good faith and in the best interests of the partnership. Starting or operating a competing business almost always breaches this duty, particularly when a partner:
- Uses the partnership's confidential client lists or trade secrets
- Diverts business opportunities that rightfully belong to the partnership
- Uses the partnership's funds, equipment, or employees to build a competing venture
- Solicits the partnership's customers or staff for personal gain
Even if the partner claims their competing activities are unrelated or minor, courts scrutinize these situations carefully. The fiduciary duty owed between partners is among the highest recognized in Canadian law.
What Ontario law says: the Partnerships Act
Ontario Partnerships Act, R.S.O. 1990, c. P.5, s. 30
"If a partner, without the consent of the other partners, carries on any business of the same nature as and competing with that of the firm, the partner must account for and pay over to the firm all profits made by the partner in that business."
Ontario Partnerships Act, s. 30Even without a written partnership agreement, section 30 of the Partnerships Act requires any competing partner to hand over all profits they earned, without you needing to prove financial harm. This is a significant statutory remedy that applies to every partnership in Ontario.
Beyond the statute, common law fiduciary obligations further restrict a partner's ability to compete, use confidential information, or divert business opportunities for personal benefit.
Non-compete clauses and written partnership agreements
If your partnership has a written agreement, it may contain a non-compete or non-solicitation clause. These provisions typically restrict partners from:
- Starting or participating in a competing business within a defined geographic area
- Soliciting the partnership's clients or employees
- Using confidential or proprietary information after leaving the partnership
Ontario courts will enforce these clauses if they are reasonable in scope, duration, and geography. A clause that is overly broad, for example, prohibiting competition anywhere in Canada indefinitely, may be unenforceable. An experienced lawyer can assess whether your clause will hold up and advise on your best litigation strategy.
If you do not have a written agreement, the Partnerships Act and common law fiduciary duties still offer meaningful protection. They simply require a different legal approach.
Not sure if your non-compete clause is enforceable?
Our commercial litigation team reviews partnership agreements and advises on the strength of your claim, often in an initial consultation.
→ Speak with a partnership dispute lawyerLegal remedies available to you
If your partner has breached a non-compete clause, violated their fiduciary duties, or contravened the Partnerships Act, you may have several powerful remedies available:
Profit Disgorgement
Recover all profits your partner earned from the competing business, even without proving direct loss to your partnership.
Damages
Seek compensation for economic losses including lost revenue, diverted clients, and non-economic losses from the breach.
Injunction
Apply for an injunction to immediately stop the competing activities before further harm occurs.
Partner Expulsion
Where your agreement permits, expel the offending partner from the partnership entirely.
Dissolution
Where the relationship is irretrievably broken, dissolve the partnership and obtain a full accounting of all assets.
Accounting Order
Force the competing partner to fully account for all revenues and profits derived from the competing venture.
Important
The most appropriate remedy (or combination of remedies) depends on the specific facts of your situation. A commercial litigation lawyer can advise you on the strongest path forward given your partnership agreement, the nature of the competing activity, and the losses you have suffered.
Steps to take when a partnership dispute arises
Step 1: Review your partnership agreement
Your first step is to locate and carefully review your partnership agreement. Many contracts include dispute resolution clauses requiring mediation or arbitration before court proceedings can begin. Understanding these obligations early prevents procedural missteps that could weaken your position.
Step 2: Preserve evidence
Gather and preserve all evidence of the competing activity: corporate registry records showing when the competing business was incorporated, communications in which the partner discusses their new venture, client or employee contacts that may have been solicited, and financial data showing diverted revenue.
Step 3: Consult a commercial litigation lawyer immediately
Time is critical, particularly if you are seeking an injunction. Ontario courts require applicants for urgent injunctive relief to act promptly, an unreasonable delay can be used against you. A lawyer can assess your situation, issue a demand letter, and advise whether an emergency motion is warranted.
Step 4: Explore alternative dispute resolution
If your agreement requires it, or if it makes strategic sense, mediation can resolve the dispute faster and at lower cost than full litigation. However, in cases involving urgent competitive harm, your lawyer may advise going directly to court for interim relief.
Step 5: Commence litigation if necessary
If alternative dispute resolution fails or is not suitable, commercial litigation is often the most effective way to protect your rights, recover losses, and stop the competing activities.
Warning: the limitation clock may already be running.
Ontario's basic limitation period is two years from when you discovered the breach. Missing this deadline means losing your right to sue, regardless of the merits. If the competing activity has already been going on for some time, do not wait.
→ Call 1-800-771-7882 nowHow a commercial litigation lawyer can help
Dealing with a competing partner is one of the most legally complex and financially consequential situations a business owner can face. A commercial litigation lawyer can provide critical support at every stage:
- ✓ Review your partnership contract and assess your fiduciary duty claims
- ✓ Advise on the enforceability of non-compete clauses and the strength of your overall case
- ✓ Issue a formal demand letter requiring the partner to cease competing immediately
- ✓ Represent you in negotiations, mediation, or arbitration to achieve an early resolution
- ✓ Prepare and file all court documents on your behalf
- ✓ Bring urgent motions for injunctions to halt competition while the case proceeds
- ✓ Seek full accounting and recovery of profits diverted from your business
- ✓ Protect your business interests throughout every stage of the litigation
Having an experienced lawyer on your side can be the difference between recovering what you are owed and watching your business be dismantled from the inside.
Frequently asked questions
Can a business partner legally start a competing business in Ontario?
In most cases, no. Under section 30 of Ontario's Partnerships Act, a partner cannot carry on a competing business without the consent of the other partners. If they do, they are legally required to account for and pay over all profits. Partners also owe fiduciary duties requiring them to act in good faith and in the partnership's best interests, not in their own personal interest.
What if I do not have a written partnership agreement?
You are still protected. Even without a written contract, Ontario's Partnerships Act and common law fiduciary duties impose obligations on all partners. Section 30 in particular requires a competing partner to disgorge all profits from the competing venture, regardless of whether there is a written agreement in place.
Is a non-compete clause in a partnership agreement enforceable in Ontario?
Yes, if it is reasonable. Ontario courts will enforce non-compete clauses that are reasonable in their geographic scope, duration, and the activities restricted. Overly broad clauses may be struck down or read down to a reasonable scope. An experienced commercial litigation lawyer can assess the enforceability of your specific clause.
Can I get an injunction to stop my partner from competing?
Yes. Courts can grant an interlocutory injunction to halt competing activities while litigation proceeds. To succeed, you generally need to show there is a serious issue to be tried, that you would suffer irreparable harm without the injunction, and that the balance of convenience favours granting it. Acting quickly is essential: delay undermines the urgency argument.
How long does it take to resolve a business partnership dispute?
Timelines vary considerably based on complexity, the remedies sought, and whether the parties can reach a negotiated resolution. Urgent injunction motions can be heard within days or weeks. Full commercial litigation proceedings in Ontario typically take one to three years. Many disputes are resolved through negotiation or mediation before trial.
What is the difference between a breach of fiduciary duty and a breach of contract?
A breach of contract involves failing to meet a specific term in a written or verbal agreement. A breach of fiduciary duty is broader, it arises from the special relationship of trust between partners and applies even without a written agreement. In a partnership dispute involving competition, you may have claims under both heads of liability.
Your business partner is competing against you. Here is what to do today.
Achkar Law acts for business owners in partnership disputes across Ontario, from urgent injunction applications and demand letters through to full commercial litigation. Whether your partner is misusing confidential information, violating a non-compete clause, or simply walking away with your clients, we can advise you quickly and take action where it matters.
Most partnership disputes can be resolved without a full trial. We will tell you honestly what your options are, what the risks are, and what outcomes are realistic.
The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Achkar Law Professional Corporation and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Achkar Law Professional Corporation. ©