Buying out a partner who has breached their fiduciary duty.

When seeking out a partnership, the main goal of business owners is generally to combine the skills required to build a successful company. However, it’s crucial to acknowledge that a business partnership is more than combining resources and ambitions in any way of one’s choosing. Partners should respect the partnership by fulfilling their fiduciary duties.

This collaborative relationship can turn sour if one partner breaches their fiduciary duty. Suppose this is your current predicament. Such betrayal can leave you feeling isolated and unsure of how to proceed. One path forward is buying out your partner’s stake in the business. While this can be a strategic move to help regain control and move forward, it’s crucial to be prepared for potential resistance.

What constitutes a breach of fiduciary duty?

Fiduciary duties essentially establish a legal and moral compass that each partner should follow for the benefit of the collaboration. When each partner is always working for the good of the partnership, the business can grow exponentially. However, when one partner breaks their fiduciary duty, conflicts are bound to arise, compromising the progress of the enterprise.

A breach occurs when your partner engages in unlawful or self-serving activities like:

  • Embezzlement
  • Fraud
  • Conflicts of interest

As the other half of the partnership, such actions can undermine the foundation of trust that made the collaboration possible in the first place. Moreover, you would have to worry about the potential financial and reputational damage these actions might cost the business.

Why consider a buyout?

A buyout might be the clean break you need to regain control over the business. By removing your disloyal partner, you can have an easier time rebuilding trust with stakeholders and making decisions with renewed confidence.

However, buying out a partner isn’t without its challenges. Your partner might not be willing to relinquish their stake without a fight. They may seek an injunction to block the buyout or challenge the buying price.

With proper legal guidance, you can review a pre-existing buy-sell agreement in the partnership contract to help establish a fair price. Should a lawsuit ensue, you’ll also need legal support to build a strong legal case to help protect your interests.

Buying out a partner following a breach of fiduciary duty is often necessary to help protect the business and the personal interests of other partners. However, this process can be fraught with resistance. By reviewing your partnership agreement and obtaining legal guidance, you can work to restore the integrity and stability of your business in the wake of a breach by a partner.

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney, nor do you have an attorney-client relationship with Schwartz Law Firm unless and until the same is expressly agreed to. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney. All information contained in links are the property of the linked site