Can My Business Partner Make Decisions Without Me?

my business partner is making decisions without me

Establishing a business partnership can be exciting, offering the opportunity to pool resources, share responsibilities, and pursue common goals with a trusted partner. However, navigating the dynamics of a business partnership requires careful consideration of each partner’s rights and responsibilities, including the authority to make decisions on behalf of the business. At Feldman & Feldman, our Houston partnership dispute attorneys can guide you through the key points of business partnership decision-making in Texas.

Types of Business Partnerships in Texas

Understanding your partnership structure is crucial for determining decision-making authority. The most common types of partnerships in Texas include:

  • General partnership: This is the simplest form of partnership, in which each partner shares equal responsibility for the management and operation of the business. Partners have joint authority to make decisions on behalf of the partnership, and each partner is personally responsible for the company’s debts and obligations.
  • Limited partnership (LP): A limited partnership consists of one or more general partners who have unlimited liability and manage the business; and, one or more limited partners contributes capital but has limited involvement in management and decision-making. Limited partners typically only have the authority to make decisions with the general partner’s consent.
  • Limited liability partnership (LLP): An LLP is a hybrid business structure that combines elements of partnerships and corporations. In an LLP, partners have limited liability for the debts and obligations of the business, but they may also have varying degrees of authority and decision-making power depending on the partnership agreement.

Decision-Making Authority in a Business Partnership

without a partnership agreementThe authority to make decisions in a business partnership is typically outlined in the partnership agreement, a legally binding document that governs the rights and responsibilities of each partner. The partnership agreement may specify:

  • Management structure: The partnership agreement may designate certain partners as managing partners with primary responsibility for decision-making and day-to-day operations. Managing partners may have broad authority to make decisions on behalf of the partnership, subject to any limitations or restrictions outlined in the agreement.
  • Majority rule: In many partnerships, major decisions affecting the business, such as entering into contracts, acquiring or selling assets, or making significant investments, require the consent of a majority of the partners. This principle of majority rule ensures that important decisions are made collectively in the partnership’s best interests.
  • Unanimous consent: Some partnership agreements may require unanimous consent for certain decisions, particularly those with significant financial or legal implications. In such cases, all partners must agree to the proposed course of action before it can be implemented.
  • Specific authority: The partnership agreement may delineate specific areas in which individual partners have the authority to make decisions without needing approval from other partners. For example, one partner may be responsible for managing finances, while another oversees marketing and sales.
  • Dispute resolution mechanisms: In the event of disagreements or disputes regarding decision-making authority or other partnership matters, the partnership agreement may outline procedures for resolving conflicts, such as mediation, arbitration, or voting procedures.

What Happens Without a Partnership Agreement?

If there is no written partnership agreement, the Texas Uniform Partnership Act (UPA) governs decision-making in your business. Under the UPA, all general partners in a general partnership have equal authority to make ordinary business decisions; however, for major decisions that significantly impact the company’s future, all partners must consent.

The UPA also allows partners to veto certain actions, such as selling a substantial part of the partnership’s assets.

The absence of an explicit agreement can lead to the following potential problems and risks:

  • Misunderstandings: Unclear expectations about roles, contributions, and decision-making can lead to misunderstandings and resentment.
  • Deadlocks: Disagreements on significant decisions can stall progress and hinder the business’s growth.
  • Financial disputes: Unfair profit and loss sharing based on the UPA’s default rules can create financial strain and dissatisfaction.
  • Legal issues: The absence of a clear agreement can increase the risk of lawsuits if disagreements escalate or the business is negatively impacted by a partner’s unilateral decision.

Legal Considerations and Protections

In addition to the terms outlined in the partnership agreement, partners in a business partnership are subject to certain legal duties and obligations under Texas law, including:

  • Fiduciary duty: Partners owe each other a fiduciary duty of loyalty and care, requiring them to act in the best interests of the partnership and avoid conflicts of interest. This duty extends to decision-making and requires partners to exercise prudence, honesty, and good faith in their actions.
  • Good faith and fair dealing: Partners are expected to treat each other fairly, fostering open communication, mutual respect, and transparency in decision-making processes.
  • Breach of partnership agreement: If a partner violates the terms of the partnership agreement or acts outside the scope of their authority, they may be liable for breach of contract. Remedies for breach of contract may include monetary damages, injunctive relief, and / or dissolution of the partnership.

Grounds for a Breach of Contract Claim in a Texas Business Partnership

If your Texas business partner has made a decision that has violated the terms of your partnership agreement, such as making a decision without you, you might have the grounds to file a breach of contract lawsuit. To win a breach of contract lawsuit against your business partner, you will need to demonstrate the following:

  • Valid partnership agreement: A legally binding contract exists that outlines the rights and responsibilities of each partner.
  • Performance: You fulfilled your obligations as defined in the partnership agreement.
  • Breach by partner: Your business partner failed to uphold their contractual obligations by making unilateral decisions without following established protocols.
  • Damages: You suffered financial or other losses as a direct result of your partner’s breach.

Steps To Take If You Believe Your Business Partner Breach Your Agreement

breach of contractIf you believe your business partners breached your partnership agreement by making a decision without your input when required, you should take the following steps:

  • Review the partnership agreement: Carefully examine the agreement to understand the specific terms allegedly breached by your partner.
  • Gather evidence: Collect documentation related to the agreement, financial records, emails, communication records, and any evidence demonstrating the breach.
  • Attempt amicable resolution: Before resorting to litigation, consider whether alternative dispute resolution (ADR) methods, such as mediation or arbitration, may be appropriate.
  • Consult with a Houston business law attorney: Our experienced lawyers focus their work on business partnership disputes and we can assess your situation, advise on the best course of action, and guide you through the legal process.

The Legal Process of Filing a Breach of Contract Lawsuit in Texas

If you and your business litigation attorneys determine that litigation is necessary after your partner makes a decision without you that negatively affects your business, the legal process is outlined as follows:

  • Complaint: Our attorneys will draft a legal complaint outlining the specific decision or decisions made by your partner that breached the partnership contract and the damages you seek.
  • Filing and service: The complaint will be filed with the appropriate court and served on your business partner, known as the defendant.
  • Discovery: This phase of the legal process involves exchanging information like documents, depositions, and interrogatories.
  • Negotiation or trial: Many cases are settled before trial. If settlement negotiations fail, the case proceeds to trial, where a judge or jury will decide the outcome.
  • Damages: If you win your case, the court may award various types of damages, including compensatory damages to reimburse you for financial losses due to the breach, dissolution of the partnership and division of partnership assets, or a buy-out option that requires one partner to buy out the other’s ownership stake.

Why You Should Consider Hiring The Houston Business Lawyers of Feldman & Feldman

Breach of contract lawsuits involving business partnerships can be complex. The skilled business litigation lawyers at Feldman & Feldman can:

  • Evaluate your case: We will assess the strength of your claim and potential for success.
  • Gather and analyze evidence: We will build a solid case to support your claim that your partner’s unilateral decision negatively impacted your business.
  • Navigate the legal process: We will ensure deadlines are met, handle court filings, and effectively represent your interests.
  • Negotiate a settlement: We will attempt to negotiate a fair settlement that avoids the time and expense of trial.
  • Represent you in court: We will aggressively advocate for you in court if necessary.

Filing a breach of contract lawsuit against your business partners can be challenging but necessary to protect you and your business’s best interests.

Protect Your Business’s Interests with the Help of Feldman & Feldman

Running a successful business partnership requires clear communication, mutual respect, and a well-defined decision-making framework. By having a comprehensive partnership agreement in place and fostering open communication, Houston business partners can minimize conflict and work toward achieving shared goals. At Feldman & Feldman, our experienced partnership dispute attorneys in Houston can help you draft a strong partnership agreement that outlines the decision-making processes and protects your interests; or, if your partner has already made a decision without you that was problematic, we will review the legal options for recovering the resulting business losses. Contact us today for a consultation to discuss your specific situation.