A business partnership is much more than a friendship or casual relationship. Business partners have fiduciary duties.
Essentially, this means that they must always act in the best interests of the company. There are certain things that business partners cannot do and some types of misconduct may amount to a breach of fiduciary duty.
Here are some important factors to consider.
Unauthorized profits
Of course, the ultimate aim of business partners is to take home a profit. Nonetheless, this can take time and it should not come at the expense of the company overall. The partnership agreement will outline how profits are shared and a business partner cannot transfer money to themselves out with the terms of that agreement. Unauthorized profits are a breach of fiduciary duty.
Conflicts of interest
While some business owners put everything into one company, this isn’t always the case. A business partner with an entrepreneurial streak may have multiple projects on the go at one time. There is nothing wrong with this alone, but the partner must always be aware of conflicts of interest. For example, if a partner has a major stake in a rival firm, this is a conflict of interest and it may also be a breach of fiduciary duty.
Acting in good faith
A fundamental element of fiduciary duties is to act in good faith. Business partners have a duty to be open, transparent and honest with each other and stakeholders. If a business owner comes on board with ulterior motives, such as avoiding tax or to launder money, this is a breach of fiduciary duties and it is also illegal.
Partnership disputes can be stressful. With the right legal guidance, they can be resolved efficiently.