What to Do When Your Business Partner Breaches the Agreement

A Houston Business Owner’s Guide to Navigating Partnership Disputes the Smart Way

When Trust Breaks, Everything Shakes

Let me paint you a familiar picture.

You’re reviewing your accounts late at night — nothing dramatic, just a routine check — and suddenly a number doesn’t add up. Maybe it’s a withdrawal you never approved. Maybe a client mentions a side conversation they had with your partner that you knew nothing about, or maybe it’s a gut feeling telling you something isn’t right.

That’s the moment your stomach drops.

I’ve watched Houston business owners — construction partners, SaaS founders, boutique retailers, trucking company co-owners — walk into our office wearing that exact expression. A mix of anger, confusion, and fear. Because a partnership isn’t just a contract. It’s trust layered on top of money, responsibilities, and shared dreams.

And when a partner breaches that agreement?

It’s not just a legal problem. It’s deeply personal.

Take a breath. What you do next matters far more than what has already happened.

When a business partner breaches your agreement, secure written evidence, review the partnership contract line by line, preserve financial records, and avoid emotional confrontation. In Texas, remedies can include a buyout, injunctions, damages, partner removal, or dissolution. Speak with a Houston business litigation attorney early to protect your leverage and ownership.

TL;DR — Quick Reality Check for Houston Business Owners

• Don’t react emotionally — it destroys leverage.

• Start with the contract, not assumptions.

• Document everything: emails, statements, messages, logs.

• Reference your partnership agreement and the Texas BOC.

• Preserve access to QuickBooks, banking, and shared files.

• Don’t confront verbally — switch to written communication.

• Call a Houston business litigation attorney early.

How Do You Actually Know a Breach Occurred?

A breach occurs when your partner violates a material term of your partnership or operating agreement — financial, operational, fiduciary, or statutory. In Texas, this includes hiding revenue, unauthorized withdrawals, self-dealing, withholding records, misusing company assets, or violating the Texas Business Organizations Code.

Here’s where things get messy: partners rarely announce the breach. They leave a trail of clues.

One Houston case comes to mind — a partner who “forgot” to disclose revenue from jobs he ran through his personal LLC. Over a few months, those “small side gigs” added up to more than six figures diverted away from the company. That’s not a misunderstanding. That’s self-dealing, and under Texas law, it’s one of the clearest breaches of fiduciary duty.

Common signs a breach is brewing:

• Unexplained spending or withdrawals

• Secret vendor or client contracts

• Blocked access to shared accounts

• Missing invoices or altered financial data

• Sudden secrecy around decision-making

• A shift in behavior: defensive, cold, or evasive

Most owners hope the behavior stops on its own. It won’t.

Understanding Partnership Breaches Under Texas Law

Business partnerships fall apart for predictable reasons, even though each situation feels uniquely painful.

The most common triggers in Texas include:

• Capital disagreements (who paid what, who didn’t)

• Unauthorized spending

• Diverting clients or opportunities

• Violating voting or approval rules

• Mismanaged accounting

• Side businesses siphoning revenue

• Breakdown of trust, communication, or transparency

Here’s the thing — most breaches don’t explode overnight. They show up in tiny ways that suddenly add up to a crisis:

• Numbers stop matching.

• Your partner becomes harder to reach.

• Access to accounts tightens.

• “Small mistakes” pile up.

In Houston — where business moves quickly across construction, oil & gas, medical practices, real estate, trucking fleets, and tech — even minor breaches can freeze operations or scare investors.

Material vs. Minor Breach — Why the Distinction Matters

People underestimate this part.

A material breach strikes at the core of the business — money, operations, trust, and fiduciary duties.

A minor breach is still a violation, but it might not justify immediate war.

Why it matters:

Your entire strategy depends on this distinction.

Push too hard on a minor issue? You escalate a solvable problem into a permanent fracture.

Treat a material breach like a small hiccup? You give your partner room to cause serious damage.

This single miscalculation is where most business owners lose leverage.

Your Legal Rights Under Texas Partnership Law

Even if you never signed a written agreement, Texas law still protects you.

Under the Texas Business Organizations Code, every partner owes:

• Duty of Loyalty (no self-dealing, no diverted opportunities)

• Duty of Care (no reckless decisions)

• Duty of Good Faith and Fair Dealing

• Duty to Provide Access to Records & Information

When a partner hides money, blocks access, or funnels clients to a personal venture, they’re not just being unethical — they’re breaching fiduciary duties, one of the strongest claims in Texas litigation.

This is where courts in Harris County get serious.

What Should You Do the Moment You Suspect a Breach?

Document everything before your partner figures out you’ve noticed. Preserve records. Review the agreement. Speak to an attorney before confronting them.

Here’s the harsh truth: When people realize they’ve been caught, they start deleting things.

Protect yourself immediately:

• Save emails and texts

• Download bank statements

• Export QuickBooks logs

• Pull invoices, contracts, and receipts

• Preserve Slack / Teams messages

• Screenshot suspicious activity

• Back up shared drive folders

In Texas litigation, the side with the best documentation usually wins — even when the other side caused more damage.

Step 1: Pull Out the Partnership Agreement

When emotions spike, memory becomes unreliable. The contract keeps you grounded.

Review key sections:

• Capital contributions

• Voting rights and decision-making

• Profit and loss allocations

• Non-compete and non-solicitation terms

• Buyout formulas

• Removal procedures

• Mediation or dispute resolution clauses

Many Houston agreements require mediation before filing suit. Others include pre-set buyout valuations or removal mechanisms when a partner breaches fiduciary duties.

I’ve seen entire disputes turn on a single sentence buried on page 12.

Step 2: Document Every Detail — Your Evidence Is Your Leverage

In Harris County courts, the partner with the cleanest paper trail usually walks out in the strongest position.

Collect everything:

• Emails and texts

• Bank and credit card statements

• Internal messages (Slack, Teams, WhatsApp)

• Contracts and vendor invoices

• Payroll logs

• Cloud file histories

• Screenshots of suspicious behavior

• Client complaints

• Unauthorized agreements that the partner signed

Documentation transforms a chaotic emotional conflict into a clear timeline that judges can follow.

And the quality of your evidence often matters more than the size of the breach.

Step 3: Communicate Formally — Not Emotionally

This is where most owners get burned.

Do not:

• Confront your partner in anger

• Send emotional or accusatory messages

• Delete messages

• Make threats

• Talk to employees about the dispute

• Try to “negotiate” without leverage

Shift communication into writing:

A simple, factual, contract-based email outlining:

• The issue

• The date it occurred

• Which clause was impacted

• The business consequence

• A request for clarification

A well-written record shows professionalism and protects your credibility. If your partner responds defensively or dishonestly, that becomes evidence too.

Step 4: Evaluate the Business Impact

Not every breach ends a partnership. Some are repairable. Others demand immediate action.

Ask yourself:

• Did it cost us money?

• Did it damage client relationships?

• Did it jeopardize operations or deadlines?

• Did it break trust beyond repair?

• Did it violate fiduciary duties?

Houston businesses often operate in high-stakes environments:

• A missed capital contribution delays a construction project.

• Diverted clients undermine a professional service firm.

• Hidden revenue terrifies investors in a tech startup.

Impact determines your strategy.

Step 5: Explore Your Remedies — Quietly but Strategically

Here are the most common legal paths in Texas:

1. Negotiation

Good for misunderstandings or early-stage issues.

2. Mediation

Many Houston agreements require it.Fast, confidential, often effective.

3. Buyout or Partner Removal

If your contract allows it — and many do — you can legally remove a breaching partner without dissolving the company.

4. Demand Letter

A formal notice outlining the breach, evidence, and required corrective action.Surprisingly effective.

5. Accounting or Financial Audit

Critical when money goes missing.

6. Injunctions

Stops harmful behavior immediately — client poaching, fund transfers, secret deals.

7. Litigation

Necessary when the breach is intentional, severe, or ongoing.

A skilled Houston business litigation attorney guides which path that protects the business with the least destruction.

When the Breach Involves Missing or Misused Money

Financial misconduct is the most common — and most damaging — breach we see.

What to look for:

• Checks written without authorization

• Personal expenses disguised as business expenses

• Zelle / Venmo transfers to personal accounts

• Kickback arrangements

• Double-booked or split invoices

• Personal LLCs receiving company revenue

One Bellaire business owner once brought in a shoebox full of fuel receipts — all charged to the company card. Her partner was moonlighting as a rideshare driver and pushing every drop of gasoline into the business. That was just the beginning.

Courts treat financial misconduct with urgency because it impacts everyone: owners, employees, clients, and vendors.

Mini Case Study — How a Small Breach Turned Into a Clean Removal

Two Houston SaaS founders bootstrapped a promising product. Everything looked solid — until one partner started routing “test clients” through his personal LLC. A few hundred dollars at first. A few thousand later. The entire accounts.

The other founder didn’t confront him. She:

• Collected invoices and Stripe reports

• Reviewed their partnership contract

• Found a removal clause triggered by self-dealing

• Consulted a business litigation attorney quietly

Within weeks, she executed a clean buyout with no lawsuit, no investor panic, no public drama.

The company grew faster once the dead weight was gone.

The lesson? Clarity wins. Panic loses.

When Should You Involve a Houston Business Attorney?

As soon as you strongly suspect a real breach — not later.

Not when you finally get angry.Not when you have “enough proof.”And definitely not once the partner begins covering their tracks.

You bring in a lawyer early to protect leverage, not to escalate conflict.

A business attorney will help you:

• Review your agreement

• Identify the breach

• Preserve evidence

• Plan communication

• Draft notices

• Negotiate quietly

• Execute a buyout or removal

• File injunctions if harm is active

Every week you wait, leverage slips.

Does a Breach Mean the Partnership Is Over?

Not always.

Fixable Breaches

Misunderstandings, accounting errors, and communication breakdowns.

Serious Breaches

Diverted revenue, secret deals, and financial mismanagement.

Irreparable Breaches

Fraud, intentional sabotage, competing ventures.

One Heights-based startup discovered a founder building a competing platform behind everyone’s back.

There was no fixing that.

Evidence That Matters Most in Texas Partnership Disputes

Judges don’t rely on emotions — they rely on documentation.

High-value evidence includes:

• Bank statements

• Tax filings

• Partnership or operating agreement

• QuickBooks logs

• Contracts and invoices

• Payroll records

• Slack / Teams messages

• Emails and text threads

• Cloud file version histories

The funny thing? Casual Slack messages often become the most revealing evidence in court.

Should You Negotiate, Mediate, or Litigate?

Here’s a quick breakdown:

Type of Breach	Behavior	Likely Texas Remedy
Financial Mismanagement	Missing funds, unauthorized spending	Accounting, restitution, and injunction
Self-Dealing	Diverting clients, hidden LLCs	Buyout, removal, damages
Violations of Agreement	Breaking approval rules	Enforcement, penalties
Withholding Information	Blocking access to records	Court-ordered accounting
Fraud	Intentional deception	Injunctions, dissolution, damages

The more intentional the harm, the faster litigation becomes necessary.

Your Next Steps (Action Plan)

✔ Start documenting — today

✔ Pull your partnership agreement

✔ Preserve all financial and digital records

✔ Lock down account access where legally allowed

✔ Build a timeline of events with dates and evidence

✔ Speak with a Houston business litigation attorney

✔ Prepare for negotiation but expect resistance

This roadmap protects your company, your equity, and your sanity.

When to Hire a Business Litigation Attorney Immediately

Call a lawyer if you see:

• Diverted clients

• Missing money

• Secret LLCs

• Altered records

• Capital contribution breaches

• Self-dealing

• Hidden accounting

• Reputation-damaging behavior

Houston business disputes move faster than owners expect.

A business litigation attorney protects:

• Your ownership

• Your company

• Your assets

• Your brand

• Your future revenue

If your partner’s decisions are putting the business at risk, you need backup — now.

Legal Remedies in Texas for Partnership Breaches

Texas courts allow strong remedies depending on the severity of the breach:

• Monetary damages

• Forced buyout

• Partner removal

• Accounting and financial audits

• Injunctions

• Receivership

• Dissolution (when the business can’t function)

• Recovery of attorney’s fees

One Houston construction company we represented saw a temporary injunction granted in days after a partner signed unauthorized contracts under the company’s license.

When the evidence is strong, courts act fast.

FAQs

1. What qualifies as a breach of contract in a partnership?

Anything that violates your written agreement or fiduciary duties — such as hiding revenue, withholding records, diverting clients, or misusing company funds.

2. Can I remove my partner for breaching the agreement?

Yes. Many Texas agreements include removal or buyout clauses that courts enforce when supported by evidence.

3. What if we never signed a written agreement?

Texas applies default partnership laws — including fiduciary duties. You still have legal protection.

4. Should I confront my partner directly?

Not verbally. Use written communication so everything is documented.

5. Does mediation work for partnership disputes?

Often, yes, especially because many Houston agreements require it before litigation.

6. Can I sue my partner for damages?

Yes. Particularly for financial harm, fraud, or breaches of fiduciary duty.

7. How long do I have to file a breach of contract claim in Texas?

Generally, four years, but waiting reduces leverage and weakens evidence.

8. Will the business automatically dissolve after a breach?

No. Many companies recover through buyouts, restructuring, or leadership changes.

If your partner breached the agreement, don’t wait for the situation to “work itself out.”It won’t.

Get clarity, protect your rights, and regain control of the business you built.

The Spencer Law Firm helps Houston business owners resolve partnership disputes with strategy, precision, and confidentiality.

Book a Consultation Call

Author

Ashley Spencer — Partner, The Spencer Law Firm Ashley represents Houston business owners in partnership disputes, breach of contract cases, and complex business litigation. Known for her practical, strategic approach, she guides clients through high-stakes conflicts with clarity and confidence.

Legal Disclaimer

This article is for informational purposes only and does not constitute legal advice. Reading this does not create an attorney–client relationship. Consult a Texas business attorney regarding your specific situation.