The Ins and Outs of Business Partnership Break-Ups and Where a Lawyer Comes In
Business partnership break-ups can sometimes be more complicated and stressful than a personal separation. Many people start businesses with friends or family, relying on trust and good intentions rather than putting formal agreements in place. Sometimes, they skip legal documents to save money in the beginning. But when disagreements arise—especially after a business has become successful—having no clear plan makes things much harder to resolve.
The good news is there are solutions. Working with a business lawyer early on, or even during a dispute, can make a huge difference in protecting everyone’s interests and finding a fair outcome. The right approach depends on how the business is structured. In Ontario, businesses with multiple owners are usually set up as either partnerships or corporations.
Sorting Out Business Partnership Break-Ups
When disagreements pop up between business partners, the best move is to try to resolve things amicably. Negotiating a solution—like one partner buying out the other or agreeing to end the partnership—can save a lot of time, money, and stress. A business lawyer can help guide these discussions, ensure agreements are fair, and handle the paperwork.
If there is a partnership agreement in place, it should outline how to handle disputes and the process for ending the partnership if/when the time comes. Following those terms in good faith is key. Without an agreement, any partner can choose to dissolve the partnership by giving notice—but this is not a step to take lightly. Speaking to a lawyer first can help weigh the pros and cons, avoid costly mistakes, and protect everyone involved.
It is also important to remember that partners have a legal duty to act in the best interest of the business. Even in the middle of a disagreement, it is crucial not to take actions like moving money without consent, badmouthing a partner, or taking client information for personal gain. Breaching these duties can lead to legal consequences.
How Ontario’s Partnerships Act Impacts Business Disputes
In the absence of a written partnership agreement, in Ontario the Partnerships Act steps in with default rules that can significantly impact how disputes unfold. Under the Act:
Profits and losses are shared equally regardless of each partner’s investment.
Partners must provide full and honest information about the business to one another.
Each partner can help manage the business and must avoid competing with the partnership.
Major business changes require unanimous consent.
Any partner can dissolve the partnership by giving notice, unless the partnership has a set end date.
Death, insolvency, or certain legal issues can automatically end the partnership.
Disputes can be taken to court if no resolution is found.
Many of these provisions can be altered with a partnership agreement, which is why drafting one with a business lawyer’s help is essential from the start. A lawyer can explain how the Act applies to a specific situation and what steps to take to protect the business and its partners.
How to End a Business Partnership the Right Way
If the decision is made to end the partnership, the process should be handled carefully and fairly. Even after dissolving the partnership, there are still responsibilities to wrap up business affairs, finish pending projects, and fairly split the company’s assets based on ownership shares. Things like equipment, client lists, and leftover funds should be divided with transparency to avoid future conflicts.
Former partners are generally free to move on and even compete with one another, but there are some ongoing obligations until everything is fully settled. A business lawyer can help ensure all loose ends are tied up properly, prevent overlooked liabilities, and handle the final paperwork so things don’t come back to cause issues later.
What Happens When Owners Disagree On The Business Partnership Break-up?
One of the trickiest situations happens when two people co-own a business 50/50 and cannot agree. This kind of deadlock can paralyze the company and hurt its operations. Many business owners incorporate their company to benefit from legal protections and tax advantages, but disagreements can still arise—especially if there was not a shareholder agreement put in place at the start.
A shareholder agreement is a vital tool that outlines each owner’s rights and provides solutions for resolving disputes. One common solution is a "buy-sell" or "shotgun" clause, which lets one shareholder offer to buy the other’s shares at a set price. The other shareholder can either accept the offer or buy out the first owner at the same price. Without a shareholder agreement, resolving these deadlocks often becomes more complicated and expensive.
A business lawyer can review the company’s incorporation documents, explore legal options, and negotiate solutions that work for both parties. Taking legal advice early can prevent disputes from escalating and protect the business from unnecessary financial harm.
Why You Need To Work With A Lawyer During a Business Break-up
Whether starting a business, dealing with a dispute, or ending a partnership, consulting with a business lawyer is one of the best ways to safeguard personal investments and the future of the company. An experienced lawyer can help draft partnership or shareholder agreements that prevent conflicts from happening in the first place. If issues do arise, they will provide clear guidance and work toward practical solutions.
No one goes into business expecting things to fall apart, but having the right advice and legal protections put in place, just in case, makes all the difference. The corporate and commercial litigation lawyers at Gionet Fairley Wood LLP have extensive experience handling these business issues through negotiation, mediation, and arbitration, as well as in court proceedings. Contact us through our website, or call us today at 705-468-1088, for the trusted legal advocacy your business needs in Simcoe County, Muskoka, Grey Highlands, and the surrounding area.
***The information provided in this blog is for general informational purposes only and should not be construed as legal advice. If you have legal questions, we strongly advise you to contact us.