Protecting Your Business

What options do business partners have when a fiduciary duty has been breached?

On Behalf of | Oct 8, 2024 | Business Litigation |

In business partnerships, trust is the glue that holds everything together. Each partner has a fiduciary duty to act in the best interest of the partnership and the other partners. When this trust is broken, it can lead to serious problems.

Knowing the available legal remedies for a breach of fiduciary duty can help partners protect their rights and the business.

Understanding fiduciary duty in partnerships

The California Corporations Code explains that fiduciary duty means that partners must act with honesty, loyalty and good faith toward each other and the partnership. They should avoid conflicts of interest and must not use partnership assets for personal gain. This duty ensures that all partners work toward the common goal of the partnership’s success.

Common breaches of fiduciary duty

Breaches can happen in many ways. A partner might divert business opportunities for personal benefit or hide important information from other partners. Misusing partnership funds or competing with the partnership are also common breaches. These actions harm the partnership and violate trust among partners.

Legal remedies for breach of fiduciary duty

When a breach occurs, the affected partners have several legal options. These remedies aim to address the harm and prevent further issues. One of the main remedies is to seek financial compensation. The court can order a breaching partner to pay for the losses caused by their actions. This might include repayment of misused funds, lost profits or other financial damages the partnership suffered.

In some cases, stopping the harmful behavior is necessary. Partners can ask the court for injunctive relief, which orders the breaching partner to cease certain actions. The court might also require specific performance, forcing the partner to fulfill their duties as agreed in the partnership agreement.

Expulsion or dissolution of the partnership

If the breach is severe, the nonbreaching partners might seek to remove the offending partner from the business. This expulsion can help protect the partnership’s interests. In extreme situations, dissolving the partnership might be the best option to prevent further harm.

Protecting your interests

Regular communication and transparency can prevent many issues in a business partnership. If a breach does occur, discussing your options with experienced business counsel can help you take appropriate action.