Business partnerships are important working relationships. Partners commit to establishing and running a business together. They rely on one another for practical and financial support. Typically, the terms of a partnership agreement outline what compensation each partner receives. In some cases, one partner may come to resent the arrangement and seek additional ways to enrich themselves.
If one partner discovers self-dealing on the part of the other, that could significantly compromise their ability to continue working together.
What constitutes self-dealing?
Typically, businesses looking into vendors or service providers get quotes or estimates from multiple parties. They make decisions based on the quality of services or goods, as well as the estimated price. Self-dealing undermines that process by awarding contracts to a business that has a connection to one of the partners or someone in their inner circle, such as a spouse.
Self-dealing can result in the company receiving lower-quality services or goods. Acts of self-dealing can also lead to the company overpaying for goods or services that the organization could have received more cheaply elsewhere.
How do people address self-dealing?
Self-dealing is a breach of fiduciary duty because it involves putting personal enrichment ahead of what is best for the company. In some cases, self-dealing may allow one partner to invoke the terms of a buy-sell agreement. Other times, litigation may be necessary to address the matter and recover the capital lost due to the inappropriate decisions of one business partner.
Those who suspect self-dealing may need to review the situation carefully with a skilled legal team and document their concerns. Reading contracts and reviewing documentation with the guidance of a business law attorney can help concerned business partners assert themselves when they’re facing financial misconduct from a partner.
