Partnerships break down for many reasons — money, direction, effort, or trust. When they do, BC law gives you specific tools to protect yourself. Here is what every BC business partner should know.
## When a Partnership Stops Working
Business partnerships are built on trust, shared vision, and mutual contribution. When any of those elements erodes — and it happens more often than people expect — the legal and financial consequences can be serious.
In BC, partnerships are governed primarily by the *Partnership Act*, RSBC 1996, c 348. Whether your partnership is formal (with a written agreement) or informal (a handshake arrangement that grew into a real business), BC law imposes rights and obligations on both sides. Understanding them before a dispute becomes a crisis gives you much better options.
## The Most Common Partnership Disputes in BC
### Unequal Contribution
One partner feels they are doing the majority of the work, carrying the financial risk, or growing the business while the other coasts. This is one of the most common and emotionally charged disputes, because it involves not just money but perceived fairness.
Without a written partnership agreement specifying contribution expectations, the *Partnership Act* defaults apply — which may not reflect what you actually agreed to verbally.
### Disagreements Over Direction
Partners may agree on where a business has been but deeply disagree on where it should go — whether to expand, take on debt, hire staff, or pivot the product or service. These strategic disagreements can paralyse a business if neither partner has clear decision-making authority under the agreement.
### Financial Disputes
Undisclosed personal use of business funds, disagreements over what expenses are legitimate, disputes over profit distributions, and disputes about how revenue is recognised are all common. Financial disputes almost always benefit from forensic accounting before legal proceedings.
### Breach of the Partnership Agreement
If you have a written agreement, a partner who violates its terms — by competing with the business, disclosing confidential information, taking on debt without authorisation, or acting outside their authority — has breached it. The remedy depends on the severity and whether the agreement specifies consequences.
### Deadlock
In a 50/50 partnership with no tie-breaking mechanism, genuine deadlock — where both partners refuse to budge — can bring operations to a halt. This is one of the strongest arguments for having a partnership agreement with a defined dispute resolution process before you ever need it.
## What the BC Partnership Act Says
If you have no written agreement, the *Partnership Act* fills the gaps with default rules:
- Partners share profits and losses equally, regardless of how much each contributes
- Every partner may take part in managing the business
- No partner may be expelled without unanimous consent of the others
- A partnership is dissolved by notice from any partner (in a partnership at will)
These defaults are often far from what informal partners actually intended. The absence of a written agreement does not protect you — it exposes you to rules you may not want.
## Your Options When a Partnership Dispute Arises
### Negotiation
Most partnership disputes are resolved through direct negotiation, often with legal advice on either side. If the relationship is not completely broken, this is the fastest and least expensive path. A lawyer can help you understand your leverage and structure a buyout, winding-down, or restructuring agreement that protects your interests.
### Mediation
Where negotiation has stalled but both partners are willing to engage, mediation with a neutral third party — ideally one experienced in commercial disputes — can unlock resolution. Mediation is confidential, which protects the business's reputation and client relationships. Andrew Liggett is a qualified BC mediator and can assist with commercial partnership mediation.
### Arbitration
If mediation fails or is not appropriate, binding arbitration provides a private, faster alternative to court. An arbitrator hears both sides and issues a binding decision. Partnership agreements increasingly include mandatory arbitration clauses precisely to avoid expensive litigation.
### Court — Dissolution Under the Partnership Act
If all else fails, a partner may apply to the BC Supreme Court for a dissolution order under s 35 of the *Partnership Act*. The court has broad discretion to wind up the partnership and distribute assets. Grounds include:
- A partner's mental incapacity
- Persistent breach of the partnership agreement
- Conduct likely to prejudice the business
- The business can only be carried on at a loss
- It is just and equitable to dissolve
Court-ordered dissolution is expensive, time-consuming, and often damaging to the business's goodwill and client relationships. It should be a last resort — but it is available.
## Partnership Buyouts in BC
Often the cleanest resolution to a partnership dispute is for one partner to buy out the other. The key issues are:
Valuation — How is the business valued? Revenue multiples, EBITDA, asset values, goodwill — the method matters enormously and partners almost never agree without independent input. A Chartered Business Valuator (CBV) can provide an objective assessment.
Payment terms — Is the buyout a lump sum or structured over time? What security does the departing partner receive if payments are deferred?
Non-compete and non-solicitation — What restrictions apply after departure? These must be reasonable in scope and duration to be enforceable in BC.
Liability release — The departing partner needs to ensure they are released from personal guarantees, joint obligations, and ongoing business liabilities.
Confidentiality — Both sides typically want the terms of the resolution kept private.
## The Importance of a Partnership Agreement
The single most effective thing any business partnership can do — whether you are just starting out or have been in business for years — is put a comprehensive written partnership agreement in place. A well-drafted agreement covers:
- Capital contributions and profit/loss sharing
- Decision-making authority and voting thresholds
- Dispute resolution process (negotiation → mediation → arbitration)
- Buyout triggers and valuation methodology
- Consequences of a partner's death, disability, bankruptcy, or departure
- Non-compete and confidentiality obligations
- Dissolution procedures
An agreement drafted when the relationship is good costs a fraction of what litigation costs when it is not.
## Practical Advice for BC Partners in Dispute
Do not stop business operations unilaterally. A partner who shuts down operations, locks the other out, or diverts client relationships without legal authority exposes themselves to significant liability.
Document everything. Keep records of contributions, decisions, communications, and financial transactions. Evidence that seems obvious today may be critical in a dispute later.
Get legal advice before acting. Partnership law in BC is nuanced. An action that seems protective — removing a partner's signing authority, changing bank signatories, or entering new contracts — may itself constitute a breach if done without proper authority.
Consider the business first. In most cases, partners have a common interest in protecting the business's value, client relationships, and staff. A resolution that preserves those assets is better for everyone than litigation that destroys them.
## How Sea to Sky Law Can Help
Andrew Liggett has 35 years of experience advising BC business owners through partnership disputes, dissolutions, and restructurings. He can help you assess your legal position, negotiate a resolution, represent you in mediation or arbitration, or advise you on court options as a last resort.
Whether you need a partnership agreement drafted, a buyout negotiated, or a dispute resolved, early legal advice almost always leads to a better outcome than waiting until the situation becomes a crisis.
In a partnership at will (no fixed term), any partner can dissolve the partnership by giving notice. However, leaving does not automatically release you from existing liabilities or obligations. A carefully negotiated exit agreement is almost always preferable to a unilateral departure.
Under the BC Partnership Act, a partnership is dissolved by the death of a partner unless the partnership agreement provides otherwise. A well-drafted agreement should include provisions for the business to continue and for the deceased partner's interest to be bought out by the surviving partners.
This is a serious matter that may constitute breach of the partnership agreement, breach of fiduciary duty, and potentially fraud. Document what you know, secure financial records if you have access, and seek legal advice immediately. Court orders to freeze accounts or compel an accounting are available in appropriate cases.
Especially then. Most partnership disputes arise between people who started as friends and trusted each other completely. A written agreement is not a sign of distrust — it is a mutual commitment to clear expectations that protects both of you and the business you have built together.