When you enter into a business partnership, trust and collaboration are key elements for success. However, there may be times when a business partner breaches their fiduciary duty.
This breach can jeopardize the partnership and the trust built between business partners. You need to know your options for addressing this issue and protecting your enterprise.
Review your partnership agreement
Your partnership agreement is a legally binding document that outlines the role of each partner. Review this agreement carefully to understand the terms related to fiduciary duties and breaches. If your partner’s actions are in clear violation of the agreement, you may have a strong case for pursuing further action.
Throughout the process, keep meticulous records of all communication, transactions and events related to the breach. These records can be valuable evidence if you decide to pursue litigation or need to prove your case in mediation or arbitration.
Explore alternative dispute resolution
Alternative dispute resolution methods, such as mediation or arbitration, can be less formal and costly than litigation. These methods involve a neutral third party who helps facilitate a resolution without going to court. FINRA reports the serving of 894 breaches of fiduciary duty arbitration cases in 2023.
Consider termination of partnership
In some cases, the best course of action may be to terminate the partnership. If your partner’s breach of fiduciary duty is severe and irreparable, it may be in your best interest to part ways and dissolve the partnership. Be sure to follow any procedures outlined in your partnership agreement when taking this step.
A breach of fiduciary duty by a business partner can be a challenging situation to navigate. Approaching the issue systematically can help you protect your interests and make informed decisions.