Partnership Disputes in Washington, DC

Business partners often start with the same goal: building a successful company, professional practice, investment, or joint business venture. Over time, however, disagreements can develop over money, control, work responsibilities, access to records, distributions, ownership percentages, conflicts of interest, or whether the business should continue at all.

A “partnership dispute” can involve a formal general partnership, a limited partnership, a limited liability partnership, or a limited liability company that functions like a closely held partnership. The exact legal rules depend on the entity type, the governing agreement, the state law that applies, and the conduct of the owners.

Partnership disputes are often personal as well as financial. The people involved may have worked together for years, invested money together, shared clients or opportunities, or trusted each other with control over company funds and records. When that relationship breaks down, the dispute may require quick action to protect the business, preserve records, stop misuse of assets, or separate the owners fairly. 

Key takeaways

• A partnership dispute is a disagreement among business co-owners over money, control, work responsibilities, access to records, distributions, ownership percentages, or whether the business should continue.
• A partnership can exist without a written agreement. In Washington, D.C., two or more people carrying on a business for profit as co-owners can form one even if they did not intend to.
• The written agreement comes first. Where it is silent, statutory default rules can apply.
• Partners have a right to inspect the partnership’s books and records in D.C., Maryland and Virginia, subject to statutory limits.
• Not every partnership dispute requires dissolution. A buyout, an accounting, access to records or a change in management may resolve it.

How Do Partnership Disputes Arise?

A partnership dispute can begin in many ways. Sometimes the disagreement is about whether a partnership exists at all. In Washington, D.C., for example, an association of two or more people carrying on as co-owners of a business for profit can form a partnership even if they did not intend to create one. Similar partnership statutes in Maryland and Virginia focus on the parties’ relationship and business activity, not just the label the parties used.

Other disputes arise after the business is already operating. Partners may disagree about who has authority to make decisions, how profits and losses should be shared, whether one partner is doing enough work, whether company money is being spent properly, or whether one owner is using company opportunities for personal benefit.

The first place to look is usually the partnership agreement, operating agreement, buy-sell agreement, or other written document governing the business. Maryland partnership law, for example, provides that relations among partners and between the partners and the partnership are generally governed by the partnership agreement, except for certain rules the agreement may not override. D.C. law similarly provides that the partnership agreement generally governs relations among partners and between partners and the partnership, subject to nonwaivable statutory limits.

If there is no written agreement, or if the agreement does not answer the question, statutory default rules may apply. Those default rules can address issues such as partner duties, access to books and records, management rights, dissociation, buyout rights, dissolution, and winding up.

Common Types of Partnership Disputes

Partnership disputes can involve many different problems, including:

• Misuse of company money or property. One partner may be accused of using business funds for personal expenses, diverting revenue, taking excessive draws, or failing to account for money received on behalf of the business.

• Unequal work or contribution disputes. Partners may disagree about whether one owner contributed the money, labor, property, contacts, or services that were promised.

• Access to books and records. Partners often need financial records, bank statements, tax returns, contracts, customer information, or accounting records to understand what happened. D.C., Virginia, and Maryland statutes both give partners rights to inspect and copy partnership books and records, subject to statutory limits.

• Freeze-outs and exclusion from the business. One partner may claim that the others locked them out of accounts, blocked access to records, stopped distributions, removed them from management, or tried to force them out.

• Self-dealing and conflicts of interest. A partner may be accused of taking a business opportunity, dealing with the partnership on behalf of an adverse interest, competing with the partnership, or using partnership property for personal benefit. Partnership statutes describe duties of loyalty that include accounting for partnership benefits, avoiding adverse dealing, and refraining from competing before dissolution.

• Deadlock. Equal owners may be unable to agree on major business decisions, making it difficult or impossible to operate the company.

• Withdrawal or dissociation. A partner may leave, be expelled, transfer an interest, become bankrupt, die, become incapacitated, or otherwise become dissociated from the partnership.

• Dissolution and winding up. If the business cannot continue, the partners may need to wind up the business, pay debts, sell assets, settle accounts, and distribute any remaining value.

What Duties Do Partners Owe Each Other?

Partners usually owe duties to the partnership and to each other. Those duties often include duties of loyalty, care, good faith, and fair dealing, which are often combined to simply be called “fiduciary duties.”

Books, Records, and Accounting

Partnership disputes often turn on information. A partner may suspect wrongdoing but need records to prove what happened.

D.C. law requires a partnership to keep its books and records, if any, at its principal office and to give partners and their agents and attorneys access to those books and records. D.C. law also requires partners and the partnership to provide information reasonably required for proper exercise of rights and duties under the partnership agreement or statute, and to provide other information on demand unless the demand or information is unreasonable or improper.

Maryland law provides similar rights of access to partnership books and records. Maryland law also allows a partner to maintain an action against the partnership or another partner for legal or equitable relief, with or without an accounting, to enforce rights under the partnership agreement, statutory rights, dissociation rights, dissolution rights, or other partnership-related interests.

Virginia law likewise allows a partner to bring an action against the partnership or another partner for legal or equitable relief, with or without an accounting, to enforce rights under the partnership agreement, rights under the partnership statute, dissociation rights, dissolution rights, or other partnership-related interests. Virginia courts have also recognized that, after dissolution, each partner is entitled to a settlement of partnership accounts upon winding up.

Withdrawal, Dissociation, and Buyout Disputes

A partner can leave a partnership, but leaving does not always end the relationship. The questions often become whether the withdrawal was allowed, whether it was wrongful, whether the business must dissolve, whether the departing partner must be bought out, and whether the departing partner remains liable for business obligations.

Dissolution and Winding Up

Not every partnership dispute requires dissolution. Sometimes the best solution is a negotiated buyout, a change in management, access to records, repayment of money, or a revised operating agreement.  In other cases, the relationship is too broken to continue. Dissolution means the business relationship changes and the business begins the process of winding up. Winding up can include collecting assets, paying debts, resolving claims, selling property, completing unfinished business, and distributing remaining value.

What Must Be Proven?

The exact elements depend on the claim, but partnership disputes often require proof of some combination of the following:

1. The parties’ legal relationship. The plaintiff may need to show that a partnership relationship existed and that the defendant owed duties under an agreement, statute, or fiduciary relationship.

2. The governing agreement or default rule. The court often must decide what the partnership agreement, operating agreement, or applicable statute required.

3. A breach or wrongful act. The plaintiff typically needs to show that the other partner breached the agreement, violated a fiduciary duty, misused business property, withheld records, wrongfully dissociated, diverted an opportunity, or otherwise acted improperly.

4. Harm or need for equitable relief. Some claims seek money damages, while others seek court orders, an accounting, dissolution, winding up, inspection of records, or a buyout.

Remedies in Partnership Disputes

The right remedy depends on the business, the agreement, the type of entity, and the misconduct. Common remedies include:

Money damages. A court may award damages for losses caused by breach of a partnership agreement, breach of fiduciary duty, wrongful dissociation, conversion, or other misconduct.

Accounting. An accounting can require the partners to sort out business assets, liabilities, profits, losses, distributions, draws, and amounts owed between partners.

Access to books and records. A partner may seek business records needed to understand the company’s finances and operations.

Buyout of a departing partner. If a partner dissociates and the business continues, the partnership may have to buy out the dissociated partner’s interest under the applicable statute or agreement.

Dissolution and winding up. If the business cannot reasonably continue, a court may order dissolution or winding up. Partnership statutes both allow judicial dissolution when it is not reasonably practicable to carry on the business in conformity with the partnership agreement or when another partner’s conduct makes continuation impracticable.

Court supervision or receiver-type relief. In serious cases, a court may supervise winding up or appoint a neutral receiver to protect assets and manage the process.

Injunctions. A court may order a partner to stop misusing assets, stop interfering with the business, preserve records, or refrain from taking actions that would harm the company or other owners.

Can Attorney’s Fees Be Recovered?

Usually, each side pays its own attorney’s fees unless a contract, statute, or recognized exception allows fee shifting. That is why partnership agreements, operating agreements, and buy-sell agreements should be reviewed carefully for attorney’s-fee provisions.

Some partnership statutes also include targeted fee provisions. For example, Maryland’s dissociated-partner buyout statute allows a court, in a buyout-price action, to assess reasonable attorney’s fees and expert fees against a party that acted arbitrarily, vexatiously, or not in good faith. Virginia’s comparable buyout statute includes a similar fee provision.

Even when no fee provision applies, attorney’s fees can affect settlement strategy. A dispute over access to records, valuation, buyout price, dissociation, or dissolution can become expensive quickly if the parties cannot agree on interim rules for operating the business while the dispute is pending.

Differences in the Law Among Washington, D.C., Maryland, and Virginia

The basic themes are similar in D.C., Maryland, and Virginia:  partners owe duties to each other, agreements matter, records matter, and courts can step in when the business relationship breaks down. The details, however, are not identical.

Washington, D.C. D.C. partnership disputes often turn on the governing agreement and the D.C. business organizations statute. D.C. law recognizes that a partnership can be formed by co-owners carrying on a business for profit even if they did not intend to form a partnership.  D.C. law also gives partners access to books and records and allows partners to bring actions for legal or equitable relief, with or without an accounting, to enforce partnership rights.

Maryland. Maryland’s partnership statute gives substantial weight to the partnership agreement, but it limits how far an agreement can go in restricting access to records, eliminating the duty of loyalty, reducing the duty of care, eliminating good faith and fair dealing, or removing certain judicial remedies.  Maryland also expressly allows partners to sue for legal or equitable relief, with or without an accounting, to enforce agreement-based and statutory rights.

Virginia. Virginia partnership law provides statutory rules for partner duties, dissociation, buyout, dissolution, winding up, and accounting. Virginia law allows judicial dissolution of a partnership when the economic purpose is likely to be unreasonably frustrated, another partner’s conduct makes it not reasonably practicable to carry on with that partner, or it is not otherwise reasonably practicable to carry on in conformity with the partnership agreement.

How do partnership rules compare in D.C., Maryland and Virginia?

The three follow the same basic pattern. A partnership can arise from how people do business together, partners can see the books, and a partner can ask a court for legal or equitable relief with or without an accounting.

Where does Waxman Litigation handle partnership disputes?

Waxman Litigation handles partnership disputes for owners and companies in Washington, DC, Maryland, Virginia, and New York from its office in Chevy Chase, Maryland.