How should I handle a breach of fiduciary duty by a business partner?

On Behalf of | Apr 20, 2023 | BUSINESS & COMMERCIAL LAW - Contract Disputes

Entering into a business partnership can be an exciting undertaking. With the right partner by your side, you can share ideas, pull resources and share risks and rewards that come with operating a business. Eventually, the right business partnership can help you increase your production, grow your clientele and reach new markets.

For many, business partnerships work perfectly well. Unfortunately, it is not uncommon for claims of disloyalty to arise. If you find yourself in a situation where you no longer trust your partner, you’ll need to understand how you can handle a breach of fiduciary duty so you can safeguard your business interests in the event that something is amiss.

What is a fiduciary duty?

In the context of a business partnership, fiduciary duty basically means that each party is responsible for acting in the best interest of the partnership. In other words, each partner has a legal responsibility to the business and the partners in a financial sense and a practical sense. When you get into a partnership, it is important that each party understands their responsibilities to each other as a breach of these obligations can result in challenges for both partners.

Dealing with a partner who breaches their fiduciary duty

A partner can breach their fiduciary duty in a variety of ways. They can misappropriate funds, withhold or misrepresent crucial information to their advantage or simply engage in negligent conduct to the detriment of the partnership. Whatever it is, your reaction must be proportionate to the particular breach in question.

With that said, here are some of the steps you can potentially take when a partner breaches their fiduciary duty after discussing your situation with a legal professional:

  • Discuss the breach with the possibility of clearing the misunderstanding
  • Terminate the partnership
  • Expel the partner in question if there are more than two parties in the partnership
  • Sue the partner for damages

Protecting your interests

A business partnership comes with its share of merits and drawbacks. If a partner is breaching their fiduciary duty to you and your shared enterprise, you’ll need to take appropriate steps to safeguard your business interests now and into the future.