What Happens When A Business Partner Breaches A Fiduciary Duty In Ohio?
Trust matters in business relationships because partners or co-owners often have access to the business’s finances, secrets, customers, and potential deals. If this trust is breached for personal gain, it can lead to a legal conflict that threatens not only the business but also the interests of the other partners.
Ohio law imposes legal obligations on the individuals who run the business.
What is a fiduciary duty?
Fiduciary duty usually imposes obligations on a person whose actions affect another’s interests under the law. For an Ohio limited liability company, the exact duties depend on whether the LLC is member-managed or has appointed managers, as well as the terms of the company’s operating agreement.
For a member-managed LLC, Ohio Revised Code § 1706.31 usually defines the duties of loyalty and care. The duty of loyalty requires the manager to account to the company for any profit or benefit made using the company’s operations and to avoid doing business with the company in one’s own interest at the expense of another’s. Ohio Revised Code duties of care usually prohibit gross negligence, reckless acts, intentional wrongdoing, and willful violations of the law.
Managers also have duties of loyalty and care, but with different performance standards.
What can a breach look like?
There are numerous ways in which fiduciary duty can be breached. These include diverting an opportunity from the company to another company, misusing company property for personal gain, and entering a transaction where the individual’s interests conflict with the company’s.
Suppose two individuals own and manage a company together. The individual knows that an important client of the company wishes to extend its dealings with the company. Instead of presenting this information to the company, the individual forms another company and brings the client to themselves.
Whether such behavior constitutes a breach of fiduciary duty depends on several factors.
The operating agreements can become critical
The flexibility of operating agreements is one of the most noteworthy aspects of Ohio LLC legislation.
According to Ohio Revised Code § 1706.08, a written operating agreement is able to enlarge, reduce, or even repeal the existence of any fiduciary duty. It may also reduce or repeal some liabilities for breaching any of these duties. Nevertheless, an operating agreement cannot repeal the implied covenant of good faith and fair dealing or liabilities for breaching it.
Therefore, to determine whether a person breached a fiduciary duty, it may be necessary to consider the firm’s operating agreement.
Address business-owner disputes early
Misconduct such as self-dealing or inappropriate use of corporate property can become increasingly destructive over time. Documentation can help prove what happened and whether the business was harmed.
Disputes between a business and its owner have many facets and may involve fiduciary duty, operating agreements, contracts, and other Ohio laws. A qualified Dayton, OH, business litigation lawyer will look at the relevant documentation and facts of the dispute and advise accordingly.
Talk to a Dayton, OH, General Business Counsel Attorney Today
Kohl & Cook Law Firm, LLC, represents the interests of Ohio businesses in disputes with current or former employees. Call our Dayton general business counsel lawyers today to schedule an appointment, and we can begin reviewing your case right away.
