Business partners, members of an LLC, and other internal stakeholders of a commercial entity have both common law and statutory obligations to their business. These individuals, known as fiduciaries (in this context), have a duty of loyalty to the business they represent. There are several duties that fiduciaries must adhere to, but the duty of loyalty is one of the most important obligations of fiduciaries to the principal (the business).
How Does this Play Out Among Business Partners?
Essentially, the duty of loyalty means that business owners or partners are not permitted to enrich themselves while they are acting as fiduciaries to the company. With every decision that has the slightest impact on the business, the fiduciaries must act in the business’s best interests. One way business partners often breach the duty of loyalty is taking business contacts or leads and using them for purposes other than the company. Starting another business that is a direct competitor of the principal, for instance, is another way that this duty is breached.
In certain circumstances, though, this fiduciary duty of loyalty can be altered in the partnership agreement or other chartering documents of a business. One or more partners, depending on the type of business partnership they set up, might simply be passive partners who only contribute startup capital to the business. Because these passive partners do not exert any control over the direction of the company, they might be allowed to pursue economic opportunities that would otherwise be considered conflicts of interest.
Proving a Breach of Fiduciary Duty of Loyalty
In Texas, the following conditions must be met for a claim of breach of fiduciary duty to go forward:
- The offending party actually had a fiduciary duty to you and breached that duty.
- Either you suffered harm due to the breach of duty or the offending party (wrongly) benefited from the breach.
- Additionally, you must present the amount of damages or the offending party’s benefits.
Business partners have a formal fiduciary duty to the principal (partnership), which typically makes proving that a fiduciary duty exists easy and straightforward. What’s considerably more difficult is proving that you (and the principal) suffered as a result of that breach.
You and your business partners probably began the partnership with only the best of feelings. However, cracks are starting to show in the relationships you once thought were rock solid. You now suspect that the business is suffering due to a breach of duty. Your next step is to contact an effective and knowledgeable attorney who can determine your best course of action. Capshaw & Associates has decades of experience navigating civil claims and getting justice for our clients, and we would be honored to do the same for you. Call our team at 214-761-6610 and receive a complimentary case evaluation today.