When business partners are able to work together effectively, they can help their company grow and achieve its financial objectives. However, disputes can arise when one partner exceeds the scope of their authority or takes actions without the required approval. Unauthorized actions by a business partner can expose the company and other partners to financial loss, disrupt operations, damage relationships with customers and vendors, and create internal tension. Understanding what constitutes an unauthorized action and the legal remedies that may be available is critical to protecting a company’s financial interests.
What are Unauthorized Actions by a Business Partner?
Unauthorized actions by a business partner typically involve activities or transactions undertaken without the authority granted by the partnership agreement or those that violate their obligations to the company. In addition, while some partners may have broad authority to act on behalf of the company, others may need to obtain approval from the other partners before making significant decisions. Actions taken without the necessary consent may also be considered unauthorized.
Common examples of unauthorized actions by a business partner can include the following:
- Entering into contracts without the required approval
- Incurring debt on behalf of the business without the authority to take out loans
- Selling or transferring company assets without authorization
- Making substantial expenditures outside approved budgets
- Entering into transactions that benefit the partner personally
- Hiring or terminating key personnel without proper authority
- Using company funds for personal expenses
Unauthorized conduct by a business partner doesn’t always warrant legal intervention. However, when such actions cause harm to the business or violate a partner’s legal obligations, it may be necessary to file a lawsuit.
When Unauthorized Conduct May Lead to Litigation
If a partner’s unauthorized actions cause financial loss, interfere with company operations, or are in breach of a partner’s contractual obligations, litigation may be necessary to recover the resulting damages and hold the partner accountable for their wrongdoing. Depending on the facts and circumstances of the case, a claim in connection with unauthorized actions by a business partner may be brought for:
- Breach of fiduciary duty: Business partners owe fiduciary duties to each other and the company. These duties can include obligations of loyalty, good faith, honesty, and fair dealing. If a partner’s unauthorized actions involved self-dealing or acting in their own interests rather than those of the company, they may be held liable for breach of fiduciary duty.
- Breach of contract: Partnership agreements, operating agreements, and other governing documents typically establish approval requirements and limitations on authority. In the event a partner violates these provisions, their actions may constitute a breach of contract.
- Fraud or misrepresentation: If a partner intentionally conceals information, misrepresents facts, or engages in deceptive conduct to carry out unauthorized transactions, a claim for fraud or misrepresentation may arise.
The specific claims that can be raised for a partner’s unauthorized actions will depend on the nature of the unauthorized conduct, the provisions of the governing business agreements, and the harm suffered by the company. If liability can be established, a variety of legal remedies may be available to address the misconduct.
What Legal Remedies are Available in Court?
When a business partner’s unauthorized actions result in financial losses or disrupt the company’s operations, there are a number of remedies a New York court can provide to prevent further harm and protect the company’s interests. In some cases, injunctive relief may be necessary to prevent ongoing or irreparable harm. A court may issue a temporary restraining order or preliminary injunction to stop unauthorized transactions, prevent the transfer of company assets, and preserve the status quo while litigation is pending.
Depending on the facts of the case, recoverable monetary damages may include lost profits, diverted business opportunities, misappropriated funds, and other financial losses caused by the misconduct. In some cases, equitable remedies may also be available. For instance, when questions arise regarding the company’s finances, improper expenditures, or unauthorized transfers, a court may order an accounting to examine financial records and transactions.
In certain situations, a court may order rescission to set aside or invalidate agreements and transactions entered into without proper authority. But if the relationship between business partners has deteriorated to the point where the business cannot continue operating, a court might order judicial dissolution and oversee the winding up of the business.
Contact an Experienced New York Business Litigation Attorney
If your company has been harmed by a business partner’s unauthorized actions, it’s essential to have a knowledgeable business litigation attorney by your side. At Barnes & Barnes, P.C., we offer reliable representation and skilled counsel for a wide range of business litigation matters across Long Island, including those involving unauthorized actions by business partners. Contact us at (516) 673-0674 to schedule a consultation and learn how we can assist you.
