Partnership disputes are among the most destructive forms of business litigation. Unlike disputes with external parties — customers, vendors, regulators — partnership disputes pit co-owners against each other, threatening the survival of the business itself. The personal relationships that underpin most partnerships make these disputes emotionally charged, and the financial stakes can be enormous. Mississippi courts regularly adjudicate partnership disputes, and the body of law that has developed provides both a framework for resolving conflicts and a guide for preventing them in the first place.^[1]

Common Causes of Partnership Disputes

Most partnership disputes arise from a small number of recurring issues. Unequal contributions — whether of capital, labor, or business relationships — create resentment when the partners' compensation does not reflect their perceived contributions. Undisclosed dealings and self-interested transactions erode trust and can constitute breaches of fiduciary duty. Management disagreements — over business strategy, hiring decisions, capital expenditures, and distributions — can paralyze a business when the partners cannot agree. And the absence of a written partnership agreement (or a poorly drafted one) leaves fundamental questions unanswered, forcing the parties to litigate issues that could have been resolved by contract.

The common thread in most partnership disputes is a failure of governance. Partnerships that have clear governance structures — defined roles, decision-making procedures, distribution policies, and exit mechanisms — are far less likely to end up in litigation than partnerships that operate informally. The time to establish governance is at the outset of the partnership, not after a dispute has erupted.

Fiduciary Duties Between Partners

Mississippi law imposes fiduciary duties on partners. Under the Revised Uniform Partnership Act (RUPA), adopted in Mississippi at Miss. Code Ann. § 79-12-101 et seq., each partner owes the partnership and the other partners a duty of loyalty and a duty of care. The duty of loyalty includes the obligation to account for profits derived from the partnership business, to refrain from dealing with the partnership as an adverse party, and to refrain from competing with the partnership. The duty of care requires the partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of law.^[2]

These duties are not waivable in their entirety, though the partnership agreement can modify the standards within the limits permitted by RUPA. Partners who breach their fiduciary duties are liable for damages — including disgorgement of profits, compensatory damages for losses caused by the breach, and, in egregious cases, punitive damages. The remedies available in fiduciary breach litigation are discussed in our recent analysis of damages methodologies.

How Mississippi Courts Resolve Partnership Disputes

When partnership disputes cannot be resolved through negotiation, Mississippi courts offer several mechanisms. An accounting is the most basic remedy: the court orders the partners to provide a full accounting of all partnership transactions, which can reveal misappropriation, undisclosed income, or improper distributions. An accounting is often the first step in a partnership dispute, because the financial records provide the factual foundation for all subsequent claims.

Judicial dissolution is the most drastic remedy. Under RUPA, a court may order the dissolution and winding up of a partnership if a partner's conduct has made it not reasonably practicable to carry on the business, if the economic purpose of the partnership is likely to be frustrated, or if it is otherwise not reasonably practicable to carry on the partnership business in conformity with the partnership agreement. Dissolution is a last resort — it ends the business and requires the liquidation of partnership assets — but it may be necessary when the partners' relationship has deteriorated to the point where the business cannot function.^[3]

Short of dissolution, courts can appoint a receiver to manage the partnership's affairs during the pendency of the litigation, order specific performance of partnership agreement provisions, enjoin a partner from engaging in competing activities, and award damages for breach of fiduciary duty. The chancellor has broad equitable discretion to fashion appropriate relief based on the facts of the case.

The Partnership Agreement as Prevention

The most effective way to prevent partnership disputes — or to resolve them efficiently when they arise — is a comprehensive partnership agreement. The agreement should address capital contributions and future capital calls; allocation of profits and losses; distribution policies; management authority and decision-making procedures; restrictions on partner activities outside the partnership; buy-sell provisions and valuation methodologies; dispute resolution procedures (mediation, arbitration, or litigation); and dissolution and winding-up procedures.^[4]

The buy-sell provisions deserve particular attention. A well-drafted buy-sell clause provides a mechanism for a partner to exit the partnership (or for the remaining partners to force an exit) at a predetermined price or through a specified valuation process. Without a buy-sell provision, a partner who wants to leave may be forced to seek judicial dissolution — destroying the business in order to extract the partner's value. With a buy-sell provision, the departing partner receives fair value and the business continues.

Practical Advice

For partners who are already in a dispute, the first step is to preserve evidence. Financial records, communications, and documents related to the partnership's operations should be secured before they can be altered or destroyed. The second step is to engage experienced business litigation counsel to evaluate the legal options — accounting, injunctive relief, buyout, or dissolution — and to develop a strategy that protects the client's interests while minimizing damage to the business.

For business owners forming new partnerships, the message of Mississippi's partnership case law is clear: invest in a comprehensive partnership agreement at the outset. The cost of drafting a good agreement is a fraction of the cost of litigating a partnership dispute, and the agreement provides the governance framework that prevents most disputes from arising in the first place.^[5]