When a partner violates their fiduciary duty to the organization

On Behalf of | Jan 19, 2024 | Business Disputes |

A business divorce or partnership break-up can be a messy process. The end of a working relationship could also trigger the end of the social relationship between two partners. As if that weren’t enough of a concern, the end of their collaboration could also have negative implications for the business.

Workers may exit an organization that seems unstable or may leave to follow the partner with whom they had the better relationship. Customers and clients could potentially do the same. Therefore, many people in partnerships try to overlook minor issues and continue cooperating with a partner even when they don’t contribute as much as they promised or previously did to the company. However, sometimes taking action is unavoidable because one partner has breached their fiduciary duty to the business.

What does a fiduciary duty entail?

An executive has a fiduciary duty to the business that they help operate. Especially if there are shareholders or outside investors, those running a business must put the company’s best interests ahead of their own.

Unfortunately, those who become complacent in their careers and those facing financial hardships sometimes fail to uphold their fiduciary duty. They might embezzle from the organization by taking cash or resources that technically belong to the company. They could hire a friend or family member’s business to provide support services and set the company up for a financial loss that is beneficial to them as a person.

A fiduciary duty is technically the highest degree of responsibility that one party can have to another in the United States. If someone fails to uphold their fiduciary duty to an organization, they may put themselves in an actionable position. Partners who uncover embezzlement or other breaches could take legal action.

They could litigate to recoup losses, seek the prosecution of their partner or even make legal moves intended to remove them from their role at the company. Discovering that a partner has breached their fiduciary duty often triggers profound disappointment and frustration. Those contemplating legal action after discovering misconduct on the part of a partner often need to document the situation carefully and proceed with caution for the protection of the business and their own interest in the company.

Getting the right help when dealing with a partner’s breach of fiduciary duty might increase the chances of a favorable outcome for a frustrated partner who wants to continue operating their business.