Business partnerships require mutual trust. Of course, they also require partnership agreements that codify partners’ responsibilities and obligations to the business and those involved in it.
Business partners have a fiduciary duty to one another and to the business, its employees, customers and shareholders to act in the best interests of the business. When they do something for their own profit or other benefit, they are often breaching not just the terms of their partnership agreement (which is a breach of contract) but their fiduciary duty.
What does a breach of fiduciary duty look like?
Some of the most common types of breaches of fiduciary duty by partners include:
- Self-dealing (acting for one’s own benefit instead of the business’s benefit)
- Misuse of business assets or confidential information
- Insider trading
- Failing to disclose conflicts of interest
- Negligence
- Diverting (often called usurping) a business opportunity
Some breaches of fiduciary can carry criminal consequences as well as civil ones like lawsuits – particularly if someone diverts money or other assets from the business to themselves or engages in insider trading.
Required elements for a breach of fiduciary duty
To hold a partner liable for breaching their fiduciary duty, it’s necessary to show several basic facts:
- They had a fiduciary duty.
- They breached that duty.
- The plaintiff(s) suffered harm (with damages that can be compensated) as a result.
Typically, breaches of fiduciary must occur within a “binding fiduciary relationship” codified in a contract.
If you discover evidence of a breach of fiduciary duty, it’s crucial to get sound legal guidance as soon as possible to help stop any further losses or destruction of evidence. You can then work to hold the appropriate party(ies) responsible, recover your losses and repair any reputational harm to your business.