Being a business partner comes with responsibilities. Partners have a legal duty to act in the best interests of the company- otherwise known as fiduciary duties. Should a partner breach these fiduciary duties, then there may be legal repercussions.
What are the fiduciary duties of business partners?
The duty of good faith
Business partners must act in good faith. This means that they must be open and honest with partners, shareholders, employees and clients. Every decision they make must be taken with the best interests of the company in mind. Partners must also act within the rules set out in the partnership agreement, which is a legally binding contract.
The duty of care
Business partners usually have access to company funds. Not only must they be open and transparent when using these funds, but they must exercise due diligence. Investments should not be made without due care. Should a business partner act recklessly and take unnecessary risks, this could amount to a breach of fiduciary duty.
The duty of loyalty
Another element of the fiduciary duties of business partners is loyalty. Partners must be loyal to the company they are involved with. This doesn’t mean that they cannot be involved in other projects, but those projects must not be in direct conflict. For example, if a partner was involved in another business that carried out a completely different function, this would not be a conflict of interest. However, if a partner was directly involved with a rival firm, this could be a conflict of interest and a breach of the duty of loyalty.
If your business partner has breached their fiduciary duties, then it’s important to act quickly and protect the company. Seeking legal guidance will help you to assess your options.