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One of the most common breaches of fiduciary duties we see in business partnerships involves some form of self-dealing or unfair competition. This often occurs when one of the partners is either skimming money from the business for their personal benefit, or poaching customers from the business to a side business they may be operating in secret.
We see this most often in service-based industries. For instance, someone running a home repair business with a partner might get a call from a friend or neighbor. Instead of routing that job through the business, they perform the repair on the side and pocket the money for themselves.
If that kind of work falls within the scope of the partnership, keeping it for personal gain can be considered a breach of fiduciary duty.
The first step is determining whether or not a fiduciary duty actually exists, and that’s a fact-specific question that only occurs in a case-by-case analysis.
Once that duty is established, the next question is whether the partner’s conduct constitutes a breach of that duty. In some cases, the behavior clearly crosses the line; in others, it may not rise quite to the level of a legal violation.
Finally, the court looks at whether any actual damages resulted from the alleged breach. Like many legal claims, without measurable harm, there may be no viable case even if the conduct was questionable.
After a fiduciary breach, the remedies can vary depending on the situation.
A court may order the legal dissolution of the partnership altogether. Alternatively, the aggrieved partner may be awarded monetary damages by the partner who breached their duty.
In some cases, injunctive relief may also be appropriate. That means the court could order the offending partner to cease certain actions or compel them to take specific steps as restitution for their actions, essentially requiring them to abide by what their fiduciary duty initially demanded.
Attorney Craig Donnelly is a client-focused business law attorney based in Illinois. With extensive experience helping startups and established businesses navigate complex legal issues, he is committed to guiding you through any challenges that may arise, allowing you to focus on running your business.
Still have questions? Ready to get started? Contact Donnelly Law LLC today to schedule your free consultation.
Fiduciary disputes in partnerships often stem from broken trust, making it challenging to mend the relationship after a breach occurs. One of the most effective ways to avoid costly litigation is to plan ahead.
One of the best ways we encourage potential resolutions is that, from the beginning, the partners should sit down and discuss various scenarios and clearly outline their rights and responsibilities in a written agreement. This agreement can specify what is and isn’t allowed, such as whether side businesses are permitted and under what conditions.
If there is a well-crafted agreement in place that addresses how breaches will be handled or how the partnership might be dissolved, it can provide a clear roadmap for resolving conflicts.
Preventing fiduciary breaches can be challenging because sometimes, when there’s a lucrative business opportunity, the temptation can be too great for some to resist making decisions they know their partner might not fully agree with.
However, while you can’t always stop someone from violating their fiduciary duties, you can take proactive steps with your partners to prepare for the possibility.
The most effective approach is to sit down and draft an agreement that outlines how the partnership will handle a breach if it occurs. Having this measure in place can minimize disruption and protect everyone involved in the event of a fiduciary breach.
This is a very difficult situation, because business partnerships are built on trust, and once that trust is broken, it’s similar to a marriage: rebuilding the relationship is challenging but not impossible.
There have been cases I’ve worked on where a breach occurred, yet the partnership survived. This usually happens when the breach was unintentional or the partner didn’t fully realize the impact of their actions.
If the partner can demonstrate good faith, perhaps by repaying any money taken or making restitution, and if the partners agree to modify their arrangement going forward, the relationship can often be repaired.
For more information on fiduciary duty breaches in Illinois business partnerships, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (630) 274-6196 today.
Attorney Craig Donnelly is a client-focused business law attorney based in Illinois. With extensive experience helping startups and established businesses navigate complex legal issues, he is committed to guiding you through any challenges that may arise, allowing you to focus on running your business.
Still have questions? Ready to get started? Contact Donnelly Law LLC today to schedule your free consultation.