Your Business Partner Opened a Competing Company. Now What?
You found out your partner started a side company behind your back—and it’s targeting the same clients. That’s not just betrayal. It might be illegal.
Co-owners of a business owe each other a fiduciary duty. That includes a duty of loyalty, honesty, and to act in the best interests of the business—not themselves.
So when one partner secretly opens a competing business, siphons customers, or uses shared resources for personal gain, they may have crossed the line into a breach of fiduciary duty.
🚩 What Counts as Competing?
You don’t need a non-compete clause to call it a breach. Courts look at conduct like:
- Opening a side company in the same industry
- Soliciting your business’s clients or vendors
- Using shared intellectual property or branding
- Working on the side business during company hours
- Diversion of business opportunities or revenue
If your partner is still active in your company, they may be prohibited from competing even without a written restriction. It’s the fiduciary duty that creates the obligation.
⚖️ What the Law Says
In both New York and New Jersey, partners and LLC members have legal duties to the business entity and to each other. This includes:
- The duty of loyalty
- The duty to disclose conflicts of interest
- The duty to refrain from self-dealing
When a partner secretly competes or exploits the business for personal gain, they can be held liable for:
- Disgorgement of profits
- Compensatory and punitive damages
- Removal or forced buyout
- Injunctions and account freezes
🧾 How to Prove the Breach
You’ll need evidence. Start gathering:
- Emails or texts referencing the side business
- Business filings or online listings
- Client communications suggesting diversion
- Financial records showing overlap or missing funds
Don’t confront until you’ve consulted counsel. A strategic legal approach is often more effective than emotional reactions.
🛡 Legal Options If It’s Happening to You
Depending on the situation, you may be able to:
- File a claim for breach of fiduciary duty
- Seek an injunction to stop the competing activity
- Dissolve or force a buyout of the partnership
- Recover damages, lost profits, and attorneys’ fees
Every case turns on the documents. Review your operating agreement, partnership agreement, and any prior communications.
📞 Take Action Before the Damage Spreads
If your business partner is quietly stealing opportunities, you need to act now. Waiting too long could make it harder to unwind the harm—or prove the case.
JDE Law Firm, PLLC represents business owners in high-stakes partnership disputes across New York and New Jersey.
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