Business Partner Taking Money or Opportunities? What North Carolina Business Owners Should Know
Starting a business oftentimes starts with a vision shared between partners and a mutual understanding of how the company should operate. Each owner contributes time and resources with the expectation that everyone will act in the business’s best interests. However, disputes can arise when one owner starts making questionable financial decisions or pursues business opportunities without obtaining consent from or notifying other owners.
These situations can be particularly concerning for small businesses, where owners often have significant control over company finances and operations. Fortunately, North Carolina law provides several potential options to address misconduct within a business. Understanding the difference between a basic business disagreement and one that violates the law is an important first step toward protecting your interests.
Can a Business Partner Legally Take Money From the Company?
The answer ultimately depends on the circumstances and the company’s organizational structure alongside the agreements that govern it. Business owners may be entitled to receive salaries or other compensation. A withdrawal from a business account is therefore not necessarily improper just because another owner didn’t personally approve it.
For example, an LLC operating agreement may authorize a managing member to receive compensation or make financial decisions independently. By default, North Carolina law vests management of an LLC in its managers, gives each manager an equal right to participate, and makes management decisions approved by a majority of the managers controlling. N.C. GEN. STAT. § 57D-3-20. Similarly, an owner may be entitled to reimbursement for legitimate business expenses.
However, a withdrawal may raise legal concerns when a business partner:
Transfers money into a personal account without authorization
Uses company funds to pay personal expenses
Hides transactions from other owners or falsifies financial records
Takes distributions that violate the operating agreement or applicable law
Uses company assets for personal benefit in violation of applicable duties or agreements
Engages in other self-dealing or appropriates business opportunities for themselves
Violates covenants not to compete or other anti-competitive practices that harm your business
Whether these actions violate the law depends on the partner’s authority and any obligations established by law and company agreements. In an LLC, for example, a manager or other company official who approves a distribution that violates North Carolina’s LLC distribution limits can be personally liable to the company for the excess if the official did not act in compliance with the statutory standards of conduct. N.C. GEN. STAT. § 57D-4-06. A corporate director who votes for or assents to an unlawful distribution can face similar personal liability. N.C. GEN. STAT. § 55-8-33.
What Are a Business Partner's Fiduciary Duties?
A fiduciary duty generally requires a person to act in accordance with certain legal obligations toward another person or business. In North Carolina, these duties vary depending on the business structure. This distinction matters: the duties that apply to a general partner are not the same as the duties a court will recognize among LLC members or corporate shareholders.
For general partnerships, North Carolina law requires every partner to account to the partnership for any benefit, and to hold as trustee any profits, derived without the other partners’ consent from any transaction connected with the partnership or from any use of its property. N.C. GEN. STAT. § 59-51. North Carolina courts describe the relationship among partners as fiduciary and as imposing on each partner the obligation of the utmost good faith and full disclosure of all material facts relating to partnership affairs. Partners must also render, on demand, true and full information about all things affecting the partnership. N.C. GEN. STAT. § 59-50.
For LLCs, North Carolina law sets statutory standards of conduct for managers, requiring each manager to act in good faith, with the care an ordinarily prudent person in a like position would exercise, and in a manner the manager believes to be in the best interests of the LLC. N.C. GEN. STAT. § 57D-3-21. Importantly, North Carolina courts have held that those duties run to the company rather than to other managers or members, and that members of an LLC do not owe fiduciary duties to one another merely by virtue of their membership. Kaplan v. O.K. Techs., L.L.C., 196 N.C. APP. 469 (2009). The North Carolina Supreme Court has likewise stated that members of a North Carolina LLC do not owe each other fiduciary duties that can be breached. Musselwhite v. Cheshire, 266 N.C. APP. 166 (2019).
Corporate directors and officers are also subject to statutory standards of conduct. Directors must discharge their duties in good faith, with the care of an ordinarily prudent person in a like position, and in a manner they reasonably believe to be in the corporation’s best interests. N.C. GEN. STAT. § 55-8-30. Officers with discretionary authority are held to a comparable standard. N.C. GEN. STAT. § 55-8-42.
These distinctions are important when determining whether a partner’s actions violate North Carolina law.
What If Your Partner Is Taking Clients or Business Opportunities?
Business partners may sometimes pursue outside opportunities. However, problems can occur when a partner secretly redirects company clients or uses confidential information.
For example, suppose two individuals own a consulting company, and one secretly directs an existing client to another business they control. Depending on the circumstances, this could support claims involving breach of fiduciary duty or misuse of confidential information. North Carolina courts have long recognized a corporate opportunity doctrine, under which a corporate officer or director may not take for personal gain an opportunity that rightfully belongs to the corporation. Meiselman v. Meiselman, 309 N.C. 279 (1983).
Who may sue over diverted opportunities often depends on who was harmed. Because fiduciary duties in an LLC generally run to the company, a claim for diverted assets or opportunities frequently belongs to the business itself and may need to be pursued as a derivative action brought on the company’s behalf. North Carolina allows a member to bring a derivative action for an LLC after making a written demand and satisfying the statute’s timing requirements. N.C. GEN. STAT. § 57D-8-01. A shareholder faces similar demand requirements before bringing a corporate derivative proceeding. N.C. GEN. STAT. § 55-7-42.
One important limitation is worth noting. The North Carolina Supreme Court has held that unfair or deceptive conduct occurring solely within a single business—such as one partner’s breach of fiduciary duty to fellow partners—is not “in or affecting commerce” and therefore does not, by itself, support a claim under the state’s Unfair and Deceptive Trade Practices Act. White v. Thompson, 364 N.C. 47 (2010). Whether that limitation applies turns on the specific facts.
What Can You Do If You Suspect Misconduct?
If you believe your business partner is misusing company assets, consider taking these steps:
Review your governing agreements
Preserve financial records
Request company information, such as business records (North Carolina gives LLC members statutory rights to inspect and obtain certain records and information, N.C. GEN. STAT. § 57D-3-04, and gives qualifying corporate shareholders inspection rights for a proper purpose, N.C. GEN. STAT. § 55-16-02; partners may also demand a formal accounting of partnership affairs, N.C. GEN. STAT. § 59-52).
Consult a business litigation attorney
A word of caution about self-help: before changing locks, moving funds, or cutting off a co-owner’s access, review your governing agreements and get advice. Some protective measures can create their own legal exposure, and the better course is usually to document concerns, preserve records, and act through proper legal channels. If internal relationships have broken down entirely, North Carolina law also provides court-supervised remedies. A member may seek judicial dissolution of an LLC where it is established that it is not practicable to carry on the business in conformance with the operating agreement or that liquidation is necessary to protect the member’s rights and interests. N.C. GEN. STAT. § 57D-6-02. In such a proceeding, the court may decline to order dissolution if the LLC or other members elect to buy out the complaining member at fair value. N.C. GEN. STAT. § 57D-6-03. Comparable judicial dissolution grounds and a similar buyout option exist for corporations, including where corporate assets are being misapplied or wasted or where liquidation is reasonably necessary to protect a shareholder’s rights or interests. N.C. GEN. STAT. § 55-14-30; N.C. GEN. STAT. § 55-14-31. North Carolina courts analyze a complaining shareholder’s “rights or interests” in a close corporation by reference to the reasonable expectations of the participants. Meiselman v. Meiselman, 309 N.C. 279 (1983).
If you believe a business partner has misused company assets or improperly diverted business opportunities, contact our office at (704) 814-0729 to discuss your options. You can also use our Contact Us form to reach us.