When a Business Partner Breaks Trust
When you enter into a business partnership, you do so with the expectation of honesty, loyalty, and mutual respect. But what happens when your business partner violates that trust? Can you sue your partner for breach of fiduciary duty?
In many cases, the answer is yes. Business partners owe each other fiduciary duties under the law, and when those duties are violated, legal action may be warranted. Below, we explain what fiduciary duty means, what constitutes a breach, and what your options are if your business partner has acted improperly.
What Is a Fiduciary Duty?
A fiduciary duty is a legal obligation that requires one party to act in the best interests of another. In the context of a business partnership, fiduciary duties exist between partners, LLC members, and shareholders in closely held corporations.
Common fiduciary duties include:
- Duty of loyalty – A partner must not engage in self-dealing or act in their own interest at the expense of the business.
- Duty of care – A partner must act with reasonable care when making decisions on behalf of the business.
- Duty of good faith and fair dealing – A partner must act honestly and fairly in their interactions with co-owners and in managing the business.
These duties may also be outlined in your partnership agreement, operating agreement, or corporate bylaws.
What Is Considered a Breach of Fiduciary Duty?
Not every mistake or disagreement between partners amounts to a legal breach. However, the following actions may be grounds for a lawsuit:
- Misappropriating or embezzling business funds
- Hiding material financial information from the other partner(s)
- Using company resources or opportunities for personal gain
- Starting a competing business without disclosing it
- Signing contracts or deals that benefit the partner personally
- Blocking access to books, records, or key decision-making
To bring a claim, you must be able to show that your partner’s conduct violated their fiduciary obligations and that you or the business suffered financial harm as a result.
What Do You Need to Prove?
To succeed in a breach of fiduciary duty lawsuit, you typically must prove the following:
- A fiduciary relationship existed between you and your business partner
- Your partner breached a fiduciary duty through specific actions or omissions
- You suffered damages as a direct result of the breach
Documentation is critical. This may include emails, contracts, bank statements, accounting records, or witness testimony. In some cases, forensic accountants may be needed to trace misused funds or hidden transactions.
What Legal Remedies Are Available?
If a court finds that your business partner breached their fiduciary duty, several remedies may be available, depending on the circumstances:
- Compensatory damages for losses to you or the business
- Disgorgement of profits your partner gained through improper conduct
- Court orders or injunctions preventing further harm
- Removal of the partner from management or ownership roles
- Dissolution of the business or forced buyout of the offending partner’s interest
- Punitive damages in cases of egregious misconduct
A skilled business litigation attorney can help you pursue the appropriate remedy and protect your financial interests.
Is Litigation the Only Option?
Not necessarily. Before filing a lawsuit, consider:
- Reviewing your partnership or operating agreement for dispute resolution clauses
- Sending a formal demand letter outlining the breach and requested remedy
- Exploring mediation or arbitration, especially if required by contract
- Negotiating a buyout or voluntary dissolution to avoid further conflict
However, if your partner refuses to cooperate, or if the breach has caused serious harm, litigation may be the most effective path forward.
Speak with a Business Litigation Attorney
If you believe your business partner has breached their fiduciary duty, it is important to act quickly. These situations are legally and emotionally complex, and early legal guidance can be critical to protecting your interests.
An experienced attorney can help you assess your claims, gather evidence, and determine the best course of action—whether that means pursuing a lawsuit or seeking a business resolution out of court.
Need legal help? In California, navigating legal challenges, whether they involve personal injury, workers’ compensation, criminal defense or civil litigation, can be overwhelming. Khoury Law Group is here to provide the critical legal support you need. As a leading advocate for individuals facing legal battles, our experienced attorneys understand the complexities of the legal system and are committed to fighting for your best interests. With personalized legal strategies and compassionate support, we are dedicated to achieving the justice and compensation you deserve.
CONTACT US FOR HELP. Call us at (888) 354-6879 or fill out the form on our Contact page.
