Business partners usually trust one another enough to work together. They may outline certain expectations in a partnership agreement. Both partners also have basic legal responsibilities to one another and their business.
Business owners and executives typically have a fiduciary duty to their organizations. When working in a professional capacity, they should put the best interests of the business above their own desires. In some cases, partners may need to initiate litigation or propose a buyout when they discover concerning signs of a co-owner putting their own wishes ahead of what is best for the company.
What are some of the more common ways that business partners breach their fiduciary duty and potentially endanger the organizations they help run?
1. Nepotism
It is relatively common for business owners to hire people they know to work at their companies. They may offer jobs to their friends and family members. Doing so isn’t automatically a breach of fiduciary duty so long as they pay appropriate wages and impose reasonable expectations on those employees.
Nepotism involves providing others with job opportunities and either paying them far more than they deserve or turning a blind eye to their mediocre job performance. Overt nepotism can damage an organization and may constitute a breach of a partner’s fiduciary duty.
2. Self-dealing
Small businesses often need the support of other companies. From suppliers to cleaning companies, there are many types of outside businesses that may work with an organization. Self-dealing occurs when someone in a leadership position hires a business that they run on the side.
They might also offer contracts to companies owned by their spouses or children. Typically, self-dealing involves paying more for goods and services than the business would if it allowed for open bidding on company contracts.
3. Embezzlement
Sometimes, business partners aren’t satisfied with the wages or profit-sharing they receive. They may embezzle from the company by seeking reimbursement for non-business expenses, misappropriating assets or intercepting income.
Such actions can put the organization at risk. Any actions intended to enrich a business partner or their inner circle at the expense of the company could constitute a breach of fiduciary duty. Partners who have identified serious misconduct may want to consider business litigation as a means of resolving the matter.
If a business partner cannot amicably resolve the matter by buying out their partner, a lawsuit can help resolve issues caused by a partner. The courts can order restitution and can sever a partnership agreement in light of the misconduct that has occurred.
Recognizing inappropriate behavior is often the first step toward remedying the misconduct of a business partner via business litigation. Partners harmed by misconduct may be able to demand accountability from those who breach their duty to their organization.