In today’s Freedom Friday blog and email newsletter, I want to talk about another topic that does not come up often enough, and that’s how to handle difficult, and even rogue, business partners. Even if you are not in a partnership, but in an LLC, you can still deal with this issue. Also, a key issue in many of these situations is that the targeted business partner or co-owner is being treated that way by the one who really has gone rogue. So, in today’s Freedom Friday blog and email newsletter, I’m talking about how to handle a rogue business partner.
First of all, rogue business “partners” or co-owners can show up in LLCs and all sorts of business structures, and not just in formal business partnerships. Regardless of whether it is an actual business partner, a co-owner, LLC member, etc., there are several “red flags” that are considered rogue behavior on the part of a co-owner. Obviously theft from the business, but a co-owner may be breaching their duties to the other co-owner(s) and the business if they withhold financial information, sign contracts or loans without authority, pay themselves without authority, take clients or intellectual property to a new business (especially if there is a contractual provision about this), and any other kind of sabotage or ignoring any other obligations of the business. All of these can be issues because business partners and LLC members owe each other (and the business itself) a fiduciary duty of loyalty, a duty of care, and a duty to disclose. This means no self-dealing, secret profits, or competing ventures, you can’t act recklessly or intentionally harm the business, and you must provide access to the books, records, and involvement in major decisions of the business.
If you suspect that your business partner or co-owner is going rogue, you should request the books and records because you have the right to inspect them. You can send a formal notice (either yourself or through your attorney) putting objections in writing. If permitted under your partnership agreement or operating agreement, you can freeze assets. You can hire a lawyer and file for an injunction against the rogue co-owner, and you can sue for breach of fiduciary duty, breach of contract, and even dissolution of the business itself, if necessary. However, you should not drain business accounts yourself, lock the other business co-owner out without cause, or keep silent.
Before you do anything else, you need to gather documents, including financials, communications, and agreements. You will need to share them with your lawyer. You need to document everything that is happening. You should consider hiring an attorney to help you decide next steps and what your options are to protect your interests and your business.
Thinking about starting a small business? Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth? Please contact me at Jonathan@libertylegalok.com to schedule a FREE strategy session.
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