Partners who go into business with one another have certain responsibilities. Typically, partners negotiate in-depth agreements that clarify what obligations they have to one another. Partners also have a fiduciary duty to the business that they started together.
It is the responsibility of both partners to put the best interests of the company above their own wishes. Everyone benefits in cases where partners work fastidiously and help the company become successful. Even if the company struggles initially or ultimately fails, having a business partner can often shield people from major losses.
In some cases, a business partner might actually be the source of financial losses. Sometimes, one partner seeks to enrich themselves at the expense of the other or the company that they started together. A breach of fiduciary duty by a partner may be a reason to initiate business litigation.
What constitutes a breach of fiduciary duty?
There are many ways for a business partner to breach their fiduciary duty to the organization. Any actions that put the enrichment of one partner above the business’s success could constitute a breach of fiduciary duty.
Embezzling from the company is a common issue that can permanently damage business partnerships. If one partner intercepts payments from clients or misappropriates physical resources owned by the business, their actions likely constitute a breach of their fiduciary duty. They can cause significant financial harm to the organization before their partner notices their misconduct.
Self-dealing or attempting to derive personal benefit from company operations, such as a contract negotiation with an outside company, could also constitute a breach of fiduciary duty. Making choices that damage the company could also lead to claims of a breach of fiduciary duty.
The actions of the partner and the impact that their conduct has on the organization determine whether or not a partner can initiate a lawsuit. Legal action pursued due to a partner’s breach of fiduciary duty could facilitate a buyout and even lead to the courts awarding the other partner damages for the harm the misconduct caused.
Reviewing partnership agreements and business records with a skilled legal team can help people determine if a partner’s conduct warrants legal action. A breach of fiduciary duty can do real harm to an organization if left unaddressed.