Starting a new company creates legal and financial obligations. Both contracts and legal requirements govern the conduct of business owners, including business partners.
Business partners often negotiate exhaustive contracts with one another outlining their anticipated investments, performance expectations and daily responsibilities, as well as how they intend to share profits. They also have a fiduciary duty to the business that they started together, as well as to one another.
They should both be loyal, act in good faith and provide disclosures of any relevant information to one another. The best interests of the company should come before personal wishes. Unfortunately, one partner may put their own enrichment ahead of what is best for the company. In that scenario, litigation to address their breach of fiduciary duty may become necessary.
How litigation helps
Unless a partner readily acknowledges their mistakes and accepts responsibility for them, litigation may be the only way to address the impact their breach of duty has had on the organization or on the partner who remained compliant with the agreement. A lawsuit against a business partner can lead to an award of damages for the financial impact of embezzling or self-dealing.
A lawsuit could also help enforce a buy-sell agreement that allows for a partnership buyout. A judge could also issue injunctions to prevent unfair competition or other misconduct on the part of a partner exiting the organization.
Reviewing written agreements and personal concerns with a business litigation attorney can help partners evaluate their options when they suspect misconduct. Prompt legal action can help protect the company and minimize the harm generated by one partner’s failure to fulfill their fiduciary duty.
