Partner or Parasite?

Posted by William J. Piercy on

A common source of friction between business partners occurs when one consumes more than he contributes. In other words, one partner gives less and takes more than his fair share.  It’s where conflict begins. It can be as simple as showing up late and leaving early a few times a week while the other partner consistently burns the midnight oil to make the business a success.  But often, the parasitic nature of the relationship is more complex and harder to detect.

Two partners might run multiple businesses out of the same location, with co-ownership of some of the companies, but not others.  What happens when the resources of a co-owned company are used to benefit another business owned by just one of the partners?  If the business receiving the benefit gives something of comparable value back to the co-owned company, there is no issue.  But where the labor, resources, infrastructure or relationships of the co-owned company are utilized by the individually owned company, which pays nothing in return, the partner with no interest in the business that is receiving the benefit effectively subsidizes his partner, to his own detriment.

A partner who uses his position in a co-owned business to benefit his solely owned business, without the consent of his co-owners in the business providing the resources, does so at his peril.  This conduct may subject him to liability for breach of contract, breach of fiduciary duty, tortuous deprivation of corporate interest, usurpation of corporate opportunity, and conversion, among other claims.

This all too common fact pattern is as good a reason as any to find a new business partner.  But a quick and clean exit from an entrenched business relationship is not always possible.  Sometimes, an attorney is necessary to bring equitable closure.

Courts will look closely at the totality of the business dealings between the individuals and entities involved to determine whether the transactions are arms-length, in which both sides give and receive fair value.  If the relationship appears more parasitic than symbiotic, courts may award damages to the harmed partner equal to the value of his loss.