In Arizona, business partners must always uphold their fiduciary duties. You and your partner must put the business’s interests first before your own. But what happens if your associate decides to open a rival concept near yours? This is not only a breach of trust but can also be a breach of the law.
Duty of loyalty under Arizona law
Upon signing a partnership contract, fiduciary duties bind you and your partner together. State law expects you both to act with a strict duty of loyalty, which prohibits:
- Usurping business opportunities or profits for yourself that belong to the partnership
- Representing an outside party whose interests clash with the partnership
- Starting a rival business while the partnership is still active
Because the relationship is built on utmost good faith, the consequences for breaking that bond are often much harsher than a simple breach of contract.
Legal remedies for the slighted partner
If your partner suddenly goes rogue, you are not without options. A court may order the disgorgement of net profits derived from the unauthorized venture, requiring the breaching partner to account for benefits gained at the partnership’s expense.
The breach signals the beginning of the end for the professional relationship. Unless your partnership agreement explicitly allows for expulsion, you must generally apply for a judicial determination to expel a partner for a material breach of duty.
What to do if you have an unfaithful business partner
If you suspect a breach, proceed with caution. Review your partnership agreement to determine whether your partner committed a violation.
Because these nuanced disputes are fact-specific, navigating them alone is a risk you should not take. Seeking legal counsel from a business law attorney is wise.