What to do When a Business Partner Breaks Their Legal Duties in Ontario
When two or more people run a business together, each partner takes on a legal obligation to act honestly and fairly, but what happens when a partner breaks their legal duties? These duties are often spelled out in a written partnership agreement, but even without a formal contract, Ontario law requires partners to act in good faith and to avoid behaviour that harms the business.
A breach happens when a partner fails to meet these obligations. This can take many forms. A partner may take money or assets from the business, make major decisions without consulting anyone, ignore responsibilities, violate confidentiality, or pursue personal interests that conflict with the partnership. When this happens, it affects far more than daily operations. It damages trust, disrupts growth, and can threaten the financial stability of the entire business.
Review the Partnership Agreement When a Partner Breaks Their Legal Duties
The first step is to go back to the partnership agreement and read it carefully. In Ontario, partnership agreements operate as contracts, and many disagreements can be resolved by following the rules already set out in writing. The agreement may describe each partner’s role, outline how decisions should be made, explain how profits are shared, and set out processes for resolving disputes, buying out a partner, or dissolving the partnership entirely.
If there is no formal agreement, the Partnerships Act (Ontario) fills many of the gaps. This law outlines default rules for how partners must behave, how decisions must be made, and how disputes can be addressed.
Understanding these obligations will help determine whether a true legal breach has taken place, and what rights and remedies are available.
Speak with a Lawyer Early When Your Business Partner Breaks Their Legal Duties
A business lawyer can offer guidance at any time when a partner breaks their legal duties. Early legal advice often prevents the situation from escalating and ensures that every step is taken with the long-term health of the business in mind. A lawyer can review the agreement, help interpret Ontario partnership laws, represent the business in mediation or litigation, and assist with rewriting or updating partnership documents.
Gather Evidence of the Breach
Before taking action, it is important to document what happened. Financial records, emails, written agreements, internal notes, and witness statements can all help establish the facts. Clear evidence makes it easier to address the issue fairly, whether through discussion, mediation, or the court system. Your lawyer will review any documents and evidence when determining how to advance your partnership dispute.
Before You Take Drastic Steps, Start with a Direct Discussion
Many partnership disputes begin with misunderstandings or communication breakdowns. If possible, hold a structured conversation with the partner involved. Present the facts, explain the impact on the business, and give them an opportunity to respond. Sometimes this alone can resolve the situation, especially if the breach was unintentional.
If the behaviour continues, or the issue is serious, then more formal steps are necessary.
Consider Mediation or Arbitration When a Partner Breaks Their Legal Duties
Many partnership agreements in Ontario include mediation or arbitration clauses. Even if there is no clause, these options are worth exploring before going to court.
Mediation involves a neutral third party who helps the partners reach a voluntary resolution. It is private, collaborative, and often much faster than litigation.
Arbitration is more formal. An arbitrator listens to each side and makes a binding decision. It still offers privacy and efficiency compared to a court process.
Both options can reduce costs, preserve working relationships, and protect the business from unnecessary disruption.
Taking Legal Action in Ontario
If informal discussions and alternative dispute methods do not work, or if the breach is severe, legal action may be required. In Ontario, a partner can pursue several remedies through the Superior Court of Justice, depending on the nature of the breach.
Stopping Harmful Behaviour
If a partner continues to harm the business, such as diverting customers or misusing funds, the court may issue an injunction to stop the behaviour immediately while the matter is resolved.
Seeking Financial Compensation
If the business has suffered losses, a claim for damages may be appropriate. The court can order compensation for lost profits, damage to the company’s reputation, or the cost of repairing the harm that was done.
Removing the Partner
If the partnership agreement allows for it, or if the partner’s actions justify it, legal steps can be taken to remove them from the business. This process must follow the terms of the agreement and Ontario’s partnership laws.
Dissolving the Partnership
In cases where trust cannot be repaired, the court may order dissolution. The business will then wind down operations, pay debts, and distribute remaining assets based on the partnership agreement or the Partnerships Act.
Protecting the Business After the Breach When a Partner Breaks Their Legal Duties
Once the immediate issue is addressed, it is important to take steps to strengthen the business going forward. This may include updating the partnership agreement, improving financial controls, clarifying decision-making processes, or developing stronger internal policies.
Legal advice can also help prevent future disputes, especially when bringing new partners into the business or restructuring how responsibilities are shared.
Get Experienced Legal Support from Gionet Fairley Wood LLP
If a partner has broken their legal duties and the situation is affecting the future of the business, experienced legal support can make a significant difference. The team at Gionet Fairley Wood LLP assists business owners across Ontario with mediation, arbitration, and litigation involving partnership disputes.
Whether the goal is to resolve the matter privately, negotiate a fair outcome, or pursue a court-ordered remedy, we provide practical guidance and strong representation at every stage.
If you are facing a partnership dispute across Simcoe, Grey-Bruce, Muskoka or anywhere in Ontario, reach out to Gionet Fairley Wood LLP to discuss next steps or explore the best way to protect the business. Contact us today at (705) 468-1088 or visit our website to schedule a consultation.
***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.