Business partners often have a close relationship with one another. They see each other regularly and have to trust each other to act in the best interests of the company. Their success and financial stability depend on not just their own commitment to the organization but also the performance and contributions of their business partners.
Sometimes, business partners find themselves disagreeing about how to run the company or what each partner should offer the business. Occasionally, those disputes involve allegations that one partner breached their fiduciary duty to the organization. Business owners and executives typically have an obligation to act in the best interests of the company.
What are some of the ways that a business partner can breach their fiduciary duty to their organization?
1. Through embezzlement
Occasionally, one business partner is not satisfied with the income produced through the lawful operation of the company. They may misappropriate business resources or intercept funds intended for the company.
For example, they may have a client pay them in cash and then pocket some of those funds. Embezzlement can deprive a company of revenue or important resources. It enriches one partner at the expense of the organization, which is a clear breach of their fiduciary duty.
2. Through self-dealing
Sometimes, business partners have another outside company or a professional practice. Other times, their spouses or children may operate in a support sector or adjacent industry.
Self-dealing occurs when one party uses their position at an organization to obtain contracts and projects at an above-market rate. By overcharging the company, a partner breaches their fiduciary duty by seeking to enrich themselves or a close loved one at the expense of the organization they help run.
3. Through direct competition
Professionals who run more than one business or who maintain their own careers in addition to running a business through a partnership may compete with the organization they helped start and currently operate.
They might use trade secrets that they know because of their involvement with the company or relationships they have secured through business operations for personal gain and enrichment. In such cases, their competition with the organization could constitute a breach of their fiduciary duty to it.
Buyouts and litigation are both potential solutions for those harmed when a business partner breaches their fiduciary duty. Documenting the misconduct and taking prompt action are both important for the protection of those who suspect business partners of misconduct.