Business Betrayal: What to Do When a Partner Crosses the Line

Starting a business with someone takes more than capital and an idea - it takes trust.

You split the work. You share the risks. You expect that everyone is working toward the same goals. But when your partner starts putting their own interests ahead of the business, the damage isn’t just financial. It’s personal.

Our commercial litigation attorneys at Horn Wright, LLP, work with business owners throughout New York facing the fallout of broken trust. Whether you’re being cut out of decisions, suspect financial misconduct, or have already uncovered serious breaches, we’re here to protect what matters. 

Our team handles breach of fudiciary duty matters with speed and precision. As experienced attorneys, we know how to get in front of these disputes early. 

Is Your Business Partner Playing Dirty? Spot the Signs of Fiduciary Duty Violations

You entered this partnership expecting honesty, loyalty, and fairness. 

In New York, fiduciary duties are more than expectations. They’re legal obligations. And those obligations are especially strong in general partnerships, managing-member LLCs, and closely held corporations.

Breaches don’t always happen overnight. Sometimes it’s slow - unapproved spending, decisions made without your input, or profits mysteriously redirected. What begins as a gut feeling can quickly become a legal issue.

Keep an eye out for these behaviors:

• Diverting business opportunities for personal gain: One partner closes a deal alone and reroutes the earnings into a side venture. That’s not just questionable. Iit’s a breach. In Meinhard v. Salmon, one co-venturer lost out after being kept in the dark. 
• Misappropriating company funds: Charging vacations or luxury purchases to the company without approval? That’s misusing business assets and can lead to serious legal consequences.
• Making secret deals or side contracts: Private arrangements with vendors, clients, or consultants that exclude the rest of the team threaten transparency and trust.
• Failing to disclose conflicts of interest: Owning a stake in a competitor or awarding contracts to friends without disclosure isn’t just shady. It’s a legal violation.
• Using insider information for personal gain: Acting on confidential business developments for personal benefit, or tipping off others to do so, can lead to liability.

New York law backs these duties through key statutes, including Partnership Law Section 43 and Business Corporation Law Section 720.

If you’re in a closely held corporation, and a controlling shareholder is cutting you out, those same laws can support your right to fair treatment.

Betrayed and Burned? Here’s What You Can Do Right Now

If your partner has violated your trust and obligations under the law, you don’t have to stand by. New York provides clear legal remedies that can help repair the damage or stop it from getting worse.

Depending on the severity of the breach, here’s what you may be able to pursue:

• Monetary damages: Recover financial losses linked to the other party’s misconduct, from lost profits to misused funds.
• Equitable relief: Courts can intervene to cancel unauthorized transactions, restrict harmful conduct, or block future decisions.
• Accounting actions: If the financial trail is unclear or concealed, you can seek a court-ordered review of all relevant financial records.
• Constructive trusts: A legal tool that allows misused or stolen assets to be held and returned to the rightful owner.
• Dissolution: If the relationship is beyond repair, courts can dissolve the partnership or company and oversee the fair distribution of assets.

Even without outright fraud, a serious fiduciary breach can justify strong legal action. With the right documentation - financial records, communications, and contracts - you can build a compelling case. Whether you’re pursuing breach of contract claims or internal company disputes, clear evidence is key.

Don’t Let a Loophole Sink You: Lock Down Your Agreements

Agreements are your first line of defense. Whether you're forming a new business or revisiting an existing arrangement, a well-written agreement brings structure, clarity, and safeguards.

Here’s what strong business documents should cover:

• Buy-sell provisions: Outline how ownership transitions will occur in the event of death, withdrawal, or forced exit.
• Conflict of interest policies: Require partners to disclose outside business interests and prohibit self-dealing.
• Voting rights and management roles: Define how decisions are made, who makes them, and how disputes are settled.
• Dispute resolution clauses: Identify alternatives to litigation, such as mediation or arbitration, for quicker and more private resolution.
• Confidentiality agreements: Protect trade secrets, client information, and intellectual property even after someone exits the business.

We assist clients throughout New York in drafting, reviewing, and strengthening their partnership and shareholder agreements. These proactive steps can prevent costly disputes and give you legal recourse if things go wrong.

Partner Disputes Deserve Strong Legal Support

Whether you're dealing with a difficult partner or planning for the future, having a trusted legal team makes a difference. Work with our knowledgeable partnership dispute attorneys at Horn Wright, LLP. 

We’re not just another corporate litigation firm. We’re the team that businesses turn to when the stakes are high. You deserve to hire one of the best law firms in America, and we’re proud to be exactly that.

Contact our office today to schedule your FREE consultation. We're ready to step in and support you with the strength and insight you deserve.