When business owners form a partnership, the goal is to pool resources and talent to launch a successful enterprise. Business relations with a friend or former college roommate can prove to be challenging, however, if they have different ideas about how to run the business or goals than you do.
Of course, any relationship can hit a rough patch, but when one partner’s activities cross a legal or ethical line, it can not only implicate the company but also entangle the other partners, creating greater risk for all. Business owners in New Jersey and New York must always protect their interests, even if it means taking legal action to clarify positions.
Addressing illegal activity
A business partner’s illegal activity not only creates liability for them, it imperils the business and other associates. If they improperly filed deductions or did not pay payroll taxes, an audit may incur penalties, and the other partners may be held liable as well. If the partner stole from the company, proving it can be challenging.
Some actions you may take, depending on the circumstances, include:
- Claim a breach of fiduciary duty: If the partner has committed theft of business assets, they are in violation of their fiduciary duty, which requires them to conduct all activity related to the business in the other partners’ best interest.
- Sue for fraud: Proving fraud is challenging, as there must be evidence that the partner intentionally deceived the injured party who relied on the deception, and that this caused harm to them. Fraud cases can occur in criminal or civil court, but a civil claim is easier to prove, as the standard of proof is not as high.
- File embezzlement charges: This would be a criminal complaint against a partner who violated their fiduciary duty to act in the best interests of the company.
Ending the relationship
Depending on the circumstances, another option is to dissolve the business. Under New Jersey law, the partnership may take action against a partner for breach of the partnership agreement, and a partner may also seek legal or equitable relief to enforce:
- Their partnership rights.
- Their right to purchase the partner’s business interest on dissolution, or to compel a dissolution.
- Their right to protect their business interests.
Making the decision to walk away or to stay and fight depends on many factors, such as how long the business has existed, how many other partners are in the business and whether the improper behavior has exposed the company to higher risk.