Starting or running a business jointly with a partner is a major commitment. Partners need to trust one another to fulfill their promises and actively work for the betterment of the company.
Most of the time, the investments that partners make in an organization incentivize them to fulfill their fiduciary duty. They put the company’s best interests first because they want the business to be as profitable as possible.
In some cases, a partner’s pre-existing professional practice or ties to an outside business organization can result in one partner engaging in self-dealing. That misconduct can undermine the trust necessary for a successful partnership and may ultimately lead to litigation.
Self-dealing is a breach of duty
Self-dealing occurs when someone in a position to make decisions on behalf of an organization offers opportunities to themselves for the sake of personal profit. A commercial property owner who just started a new partnership might choose to lease a unit in the building they own, possibly at above-market rates, for example.
Technically, self-dealing is generally a violation of federal law. Even in cases where prosecution isn’t necessary, evidence of self-dealing can be adequate grounds for one partner to pursue a lawsuit against the other.
They can seek compensation for the economic harm caused by self-dealing. They can also seek to compel their partner to either buy them out or agree to a buyout where they give up their interest in the company.
Evaluating evidence of self-dealing with a legal professional familiar with the challenges of business litigation can help partners fully understand their options. Financial records, contracts and other evidence of self-dealing can facilitate a successful request for compensation or buyout.
