Legal liability in a partnership

On Behalf of | Aug 27, 2021 | Business Law |

Possibly the greatest business risk an individual can make is forming a partnership where each partner accepts total liability for the actions of the other partner. When a partner fails to pull their weight or their actions cause harm to the company, it may be tempting to settle matters legally.

The line between full liability and absolution from negligence or folly is thin due to the nature of partnerships. But action can be taken to resolve legal disputes between partners.

Total liability

According to Pennsylvania statute, the partnership is liable for misapplied assets. This means that if one partner acting in the interest of the business purchases a defective product or incurs debt for reasons pertaining to the business, both partners are liable and obligated for outstanding debts or other ramifications of the partnership.

Though it may seem just to be able to sue a partner for seemingly irresponsible actions, if the actions were made in good faith and were in no way illegal, there is little ground for lawsuit.

Breach of contract

The exception is when a partner knowingly breaches the partnership agreement. Depending on the stipulations in the contract, this can be for a violation of property rights, entering other business dealings competing with the partnership, or unlawful activities.

Legal suits is not the only way to pursue actions against a bad partner. Owners interested in pursuing legal actions may choose to resolve issues outside the court through mediation, arbitration or settlement. If legal action can be resolved outside of court, it may save each partner valuable time and money otherwise consumed.

Resolving contract

Although Pennsylvania recognizes partners as being totally liable for the actions of all other partners, actions done that breach the partnership agreement may be legally resolved. Though lawsuits may seem like the only option, alternative methods exist for resolving legal disputes.

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