Business Partners and the Legal Relationship Between Partners

Business Partners and the Legal Relationship Between Partners

In business, commercial relationships and partnerships are fundamental to economic activity. When individuals or companies decide to cooperate, they typically define their shared rights and responsibilities through a partnership contract or written agreement. If managed correctly, these relationships can be highly profitable and effective. If disputes arise, however, they can escalate into serious conflicts. For that reason, it is essential to understand what a business partner is, which legal frameworks govern cooperation, and what remedies may be available when obligations are breached.

Iranian civil law, particularly the provisions dealing with partnership and shared ownership, outlines general principles governing partnership relationships and each partner’s responsibilities. Article 571 of the Iranian Civil Code describes partnership as the legal association of two or more persons for the purpose of earning profit through a joint activity. In practice, the relationship between partners can be more complex than the statutory definition, depending on the contract structure and the form of cooperation. The most important principles in any partnership relationship are good faith, loyalty, and transparency in performance. When a partner fails to comply with these principles, the other partner may have grounds to pursue legal action.

This article reviews key legal issues that may arise in disputes with a business partner, including the elements of breach and misconduct, the competent authority for filing claims, and practical considerations based on applicable rules in the Islamic Republic of Iran and court practice.

Where is the line between a commercial disagreement and legal misconduct?

Identifying whether a matter is a simple commercial disagreement or deliberate legal misconduct is the first critical step before filing a claim. Many disputes between partners arise from differences in business judgment, different interpretations of contractual terms, or external economic conditions. These issues are often resolved through negotiation, mediation, or arbitration.

The situation changes when a partner commits acts such as breach of trust, fraud, misuse of partnership assets, or an obvious violation of contractual duties. In those cases, the dispute may involve civil liability and, in some circumstances, criminal exposure.

The key question is whether the conduct reflects a genuine disagreement about the contract or whether it involves intent and bad faith. For example, if a partner transfers partnership profits into a personal account without informing the other partners, the conduct may be treated as an unlawful appropriation and a potential breach of trust. By contrast, a disagreement over profit distribution or reinvestment strategy may remain a civil commercial dispute with different remedies. Two factors are decisive in this assessment: the partner’s intent and motivation, and credible documentation proving breach or misuse. These issues often determine both the legal route and the likely outcome.

Breach of trust by a business partner

Breach of trust is one of the most significant allegations that may arise in partnerships and can be pursued through criminal proceedings when the necessary legal elements are satisfied. Under Article 674 of the Islamic Penal Code, if property, documents, or writings are entrusted to a person and that person uses, appropriates, destroys, or disposes of them to the detriment of the owner or the person who entrusted them, the offence may be established.

In partnership disputes, this can occur through the unlawful withdrawal of capital, the sale of partnership assets without the consent of the other partners, or the manipulation of company accounts. To prove breach of trust, several elements are generally required: the property must have been entrusted voluntarily, the partner’s conduct must show unlawful use and intent, actual loss must be demonstrable, and sufficient evidence must exist. Where these requirements are met, a criminal complaint can be filed through the prosecutor’s office. In practice, official experts, especially in finance and accounting, can be essential in examining records and providing technical opinions that influence the final decision.

Civil claims relating to the distribution of profit and loss

A common source of dispute between partners is the distribution of profits and losses. Under Iranian civil law principles, profit sharing is determined by the partnership agreement. If there is no express agreement, profits and losses are generally allocated in proportion to each partner’s contribution. In practice, disputes arise when a partner withdraws more than the agreed share or refuses to pay another partner’s share.

In such cases, the injured partner may file a civil claim based on the partnership contract, financial records, and bank statements, seeking payment of the relevant amounts. These claims are typically handled by the general civil courts, often based on the defendant’s place of residence or the place of business operations. In appropriate cases, the claimant may also request provisional measures to prevent the other partner from transferring assets before judgment. Accurate accounting and early legal advice can significantly improve the chances of success.

Relying on a formal partnership agreement or informal arrangements

The partnership agreement is often the core document in disputes between partners. If it is formally drafted in writing, it is usually the most important evidence of rights and obligations. A well-drafted agreement should clearly define the partnership purpose, capital contributions, profit and loss allocation, authority limits for each partner, duration, and termination procedures. Signatures and seals strengthen the document, and formal notarization can further improve legal certainty.

Where the relationship is based on an informal agreement or a verbal understanding, proving the partnership becomes more difficult. Still, evidence such as messages, emails, bank receipts, and witness testimony can help establish that a partnership relationship existed. Courts usually consider the overall body of evidence. In practice, parties should treat the preparation of a clear written agreement as essential at the beginning of any partnership to reduce risk and support effective enforcement if disputes arise.

Competent authorities and how claims against a business partner are handled

Selecting the proper forum is crucial. Criminal allegations, such as breach of trust or fraud, are generally filed with the prosecutor’s office, where investigations are conducted under criminal procedure. Civil claims such as payment of profit shares, termination of a partnership agreement, or contractual damages are typically heard in the general civil courts, often based on the defendant’s place of residence or the location of business activities.

If the partnership agreement includes an arbitration clause, the parties are generally expected to use arbitration first, unless the clause is invalid or does not apply to the dispute. In some situations, matters may also be referred to the Dispute Resolution Council for lower-value financial claims under applicable thresholds. More complex disputes, including dissolution issues or allegations of asset misuse, often require court proceedings and expert review. In all stages, working with counsel experienced in commercial partner disputes can reduce procedural errors and accelerate resolution.

Gathering evidence to prove breach or misconduct

Strong documentation is often the deciding factor in disputes between partners. Relevant evidence may include the partnership contract, banking records, financial statements, official correspondence, electronic communications, deposit and withdrawal receipts, and witness testimony. The more organized, time-linked, and detailed the evidence, the stronger the case.

For criminal claims, proof of entrustment, records showing unauthorized use, audit reports, and communications demonstrating intent can be highly important. For civil claims, meeting minutes, invoices, and documentation of profit allocation and expenses are often central. Courts frequently refer commercial disputes to official experts, so preparing and categorizing evidence before filing can materially improve outcomes.

Filing civil and criminal actions at the same time

A common question is whether it is possible to pursue both civil and criminal routes simultaneously. In many situations, the answer is yes. If the partner’s conduct has a criminal character, such as breach of trust, and also causes financial loss or breach of contract, a criminal complaint may be filed with the prosecutor’s office while a civil claim for damages is pursued in the civil court.

For example, an injured partner may file a criminal complaint for breach of trust and also submit a civil claim seeking compensation for losses. The criminal case outcome may influence the civil case, but the two processes can proceed independently where legally permissible. The key is careful legal coordination and consistent drafting to avoid contradictions.

Preventive measures to reduce partnership disputes

Preventing disputes is usually more effective than resolving them after they arise. In commercial partnerships, several practical measures can reduce risk:

• Draft a clear partnership agreement covering financial, managerial, and legal details.
• include a dispute resolution clause, such as arbitration or a structured escalation process.
• Register the partnership or company through the appropriate legal channels.
• perform periodic audits by an independent third party.
• document financial and operational decisions through written minutes and records.

It is also advisable to review the partnership’s financial status and performance regularly and resolve minor issues early before they escalate.

The role of a commercial lawyer in claims against a business partner

A commercial lawyer with experience in partnership disputes can play a central role in drafting claims, gathering evidence, advising on legal strategy, and managing the procedural steps of the case. Such legal support can reduce complexity and improve the effectiveness of enforcement.

In addition, legal counsel can assist in drafting partnership agreements, drafting protective clauses, and designing dispute-resolution mechanisms to reduce future conflict. During proceedings, representation by experienced counsel in court or arbitration can strengthen legal presentation and support a faster resolution.

How to file a well-structured and effective claim against a business partner

To pursue a strong claim against a business partner, the starting point is a clear legal assessment of the issue, the available evidence, and the correct procedural route. First, determine whether the matter is a commercial disagreement or includes civil and criminal misconduct. Next, organize the supporting documents, obtain legal advice, and select the competent authority.

Evidence, a written agreement, expert analysis, and professional guidance should not be underestimated. Where possible, amicable settlement and arbitration can also serve as effective complementary tools. A well-documented, properly structured claim can help recover lost rights and prevent further harm.

Frequently Asked Questions About Business Partners and the Legal Relationship Between Partners