Where Business And Law Come Together

Has a co-owner breached their duty of loyalty to your company?

On Behalf of | Mar 9, 2023 | Business Law

When taking on a partner, an entrepreneur hopes to connect with financial resources or expertise that will make their organization more competitive. Having a partner can help to reduce the risk involved with a new business enterprise while also providing social support for others who are similarly invested in the organization.

Unfortunately, a business partner can also serve as a significant source of organizational liability. Despite executing contracts that clearly make the company’s success the top priority, some executives and others with a duty of loyalty to an organization will put their own financial well-being first.

Discovering that a partner has violated their duty of loyalty to an organization can feel like a personal betrayal on top of being a business hardship. What rights do affected partners have following the misconduct of someone who has violated their duty of loyalty to an organization?

Pursuit of civil claims

Any scenario that involves a business executive or owner breaching their contract with a partner for the organization could potentially lead to civil litigation. A clause explicitly stating that someone has a duty of loyalty is a common inclusion in modern partnership agreements and employment contracts for executives.

Those with a duty of loyalty should put the needs of the organization above their own desires. They should seek to consistently act in the best interests of the company. They also need to avoid developing a conflict of interest. When there is proof that someone helping to run an organization acted in a manner contrary to its interests, their partners or investors could take them to court.

The courts can hear claims that someone violated a contract, specifically the clause imposing a duty of loyalty. Financial records and even personal information that helps establish a conflict of interest could lead to a lawsuit. Embezzlement, inappropriate sharing of intellectual property and other misconduct may be actionable breaches of a professional’s duty of loyalty to the organization.

The courts can award damages to the affected parties and can sometimes also prevent the executive or partner from engaging and similar misconduct in the future. Pursuing business litigation can serve as a means of stopping and resolving executive misconduct when this process is approached in an informed and thoughtful way.