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What starts as a handshake and a shared dream is now, more often, ending with affidavits and litigation. Across Canada, a growing number of business partnerships are collapsing under the weight of internal conflict, dragging co-founders out of the boardroom and into the courtroom. A visible shift is evident in Edmonton, where legal professionals are reporting a noticeable uptick in civil disputes between partners. The reasons vary, whether they be rising financial pressure, blurred roles, or fractured trust, but the pattern is clear: even the most well-meaning collaborations can fracture when growth brings complexity. Behind every dispute is a cautionary tale about ambition, accountability, and what happens when visions no longer align.
A National Shift in Civil Litigation
In 2020/2021, there were 241,674 non-family civil court cases initiated in Canada. Of those, 19 percent involved contract disputes, the category most relevant to business partnerships, according to Statistics Canada. Lawsuits for damages, which often include failed partnerships, accounted for 38 percent of all non-family civil law cases that year. While the total number of civil cases fell by over 20 percent during the pandemic, this has increased in following years pointing to a potential broader trend of rising civil litigation cases.
In Alberta, and particularly in Edmonton, civil litigation continues to form a major part of legal practice. A significant portion of these disputes arise when small businesses or startups encounter internal breakdowns. Alberta’s growing urban economy, along with a strong entrepreneurial culture, contributes to the volume of cases involving business disagreements. Unlike large corporations, many smaller ventures lack formal agreements or legal support, making them vulnerable to conflict.
The Hidden Vulnerability in Co-Founder Relationships
Many businesses begin informally. Friends, relatives, or colleagues decide to start something new, often without extensive legal preparation. At first, trust and a shared goal are enough. But as companies grow, so do the stakes. Disagreements about money, management, direction, or even workload can evolve into legal disputes. These often look like legally complex events involving ownership, fiduciary duties, and contract law.
The emotional strain of a collapsing partnership often matches the financial and legal damage. Trust can break down entirely. Long-time friends can become legal opponents. For many, the business is a personal identity, and losing that connection under hostile circumstances affects more than the bank balance. It impacts mental health, family life, and future professional plans. Legal resolution may take months or even years, adding further pressure.
Why Informal Agreements Fail
A handshake or casual agreement might work when the business is small, but problems tend to surface as soon as it grows. One founder might feel they are doing more of the work. Another may believe they are entitled to greater control. Without a clear agreement in place, it becomes a challenge to prove who is right.
Informal agreements tend to fall apart because they leave too much open to interpretation. Early optimism can mask vague assumptions about roles, ownership, and decision-making. As the business grows, so does the risk of conflict. These gaps may not matter in the early days, but they tend to resurface under pressure when the business becomes profitable, it takes on debt, or a founder wants to walk away. With nothing concrete to refer to, each side is left to argue their version of events.
The cost of litigation is another factor showing not just how informal agreements fail, but how they can fail the broader business, too. A seven-day trial can cost more than $70,000 in legal fees alone, depending on the size and complexity of the case. With no insurance to cover these losses, founders may face severe financial consequences on top of personal and reputational harm. Some choose to dissolve the business entirely, even if it was once profitable.
Changes in Law Are Raising the Stakes
In 2025, recent amendments to Canadian competition law introduced new civil remedies. One of the most significant changes is the ability for private parties to seek “disgorgement“, a legal order to return profits earned through alleged wrongdoing. For business partners, this could mean one co-founder suing the other for financial gains they believe were obtained unfairly. These changes are likely to lead to more civil actions in already tense business environments.
At the same time, the Department of Justice Canada has increased funding for judicial affairs to handle the rising number of complex civil cases, underlining how the legal environment is becoming more technical and expensive. This may serve as a warning of increasing claims within the system, and makes it even more important for business partners to seek advice early in their ventures.
ADR Is Growing, But Not Always Enough
Alternative dispute resolution, or ADR, is often used across Edmonton and other Canadian cities. Mediation or arbitration can provide a faster and more affordable path than court proceedings. However, ADR depends on both parties being willing to compromise. When personal emotions or large sums of money are involved, that is not always possible. While some disputes are resolved before reaching court, many still proceed to full litigation. When companies lack shareholder agreements or buy-sell clauses, courts must step in to decide outcomes that could have been managed through proper planning.
The Role of Risk Management in Business Survival
More Canadian companies are adopting artificial intelligence tools to monitor legal and financial risks. In-house legal teams report feeling more prepared than in previous years, especially as litigation becomes more common. These tools can help flag early signs of disagreement or compliance failure.
Still, technology cannot replace foundational agreements. A good shareholder agreement, clearly written roles, and dispute resolution procedures remain essential. These documents can both protect the business and significantly reduce the emotional and financial cost of breakdowns.
Despite growing awareness, many founders delay this step. Some believe it signals distrust. Others assume problems will not happen. But as the data shows, conflict is more common than many expect. And when disputes do arise, the absence of legal planning makes everything significantly harder.
What Happens When the Partnership Fails
When co-founders split, the business often suffers. Clients may leave, employees may resign, and vendors may pull back. In some cases, both partners try to claim full control. In others, one walks away with losses. Without clear exit clauses or valuation procedures, these situations can quickly collapse even a healthy business. In 2025, intensified regulatory scrutiny and a more assertive plaintiffs’ bar are contributing to increased complexities in dispute resolution for businesses. While many organizations still prioritize settling conflicts out of court, these factors may lead to more protracted negotiations and, in some instances, an increased likelihood of litigation proceeding to trial.
Investor Disputes Sparked by Co-Founder Breakdown
When business partnerships deteriorate, the damage rarely stops with the co-founders. In companies backed by private investors, angel funding, or even family money, a co-founder dispute can quickly trigger wider legal consequences. Investors who entered into agreements based on a particular leadership structure may argue that one partner’s exit or misconduct violates the terms under which they invested.
In Canadian business law, investors are not always passive observers. Depending on the structure of the deal, they may have rights to demand performance, enforce buy-sell clauses, or even initiate proceedings to recover their capital if internal management collapse compromises the company’s future. In some cases, investors will back one partner over the other, creating additional tensions and influencing the trajectory of litigation.
For early-stage ventures without strong legal architecture, this dynamic is especially risky. Shareholder agreements may not fully anticipate internal leadership conflict, leaving investor relationships exposed to fallout they didn’t cause. These cascading disputes highlight why partnership issues are rarely confined to the original disagreement, and can activate secondary legal battles that further threaten the survival of the business.
The Structural Pressures Behind Founders’ Legal Fights
Co-founder disputes are often seen as personal breakdowns, but many reflect broader structural pressures within Canada’s business environment. According to CB Insights, 14 percent of 110 startup failures were attributed to team issues. It would be reasonable to expect this would include cases of founder conflict. Rapid growth expectations, limited legal planning, and funding incentives can push founders into suboptimal formal partnerships before alignment is fully tested.
Investor pressure plays a key role. Early-stage funding often requires fast scaling, even when strategic direction or roles remain unclear. Legal preparation often lags behind business formation. Incorporation can happen in minutes, but critical documents such as shareholder agreements or exit terms are frequently delayed or skipped. When problems arise, there is no framework to contain them, and small disagreements can escalate quickly.
Public programs may add to this fragility. Grants, tax credits, and accelerator schemes often require formal registration early in the process. That urgency can mask deeper misalignment between partners, setting the stage for conflict. Notably, the same study from CB Insights highlights legal and regulatory challenges as the reason for 18% of startup failures.
Seen in this light, legal disputes between co-founders are not isolated incidents. They are part of a wider pattern in which businesses are built quickly but without the structural support needed to withstand internal strain. The consequences often play out in court.
The Future of Business Disputes in Canada
Canadian courts continue to treat contract disputes as a leading category of civil litigation. Publicly available data confirms that these trends are unlikely to reverse soon. As more people launch startups and side ventures, the number of disputes may grow. At the same time, there are signs of progress. Awareness about the importance of legal documents is spreading. Mediation services are more available. Legal budgets are adapting to include early risk reviews and compliance checks.
Still, the path forward is uneven. Some businesses learn too late. Others do not survive the fallout. In a legal climate shaped by new remedies, higher costs, and emotional pressure, the role of proper preparation has never been clearer. The partnership model remains powerful. But only when supported by clear terms, mutual respect, and a plan for what happens if things go wrong.
Contact Forum Law about protecting your partnership before growth turns into litigation.
The information in this article is based on publicly available data at the time of publication. While every effort has been made to ensure accuracy, figures and legal developments may change. This content is intended for general information only and does not constitute professional advice.