Your partner started a second company. You learned about it from a customer, not from him, and now you notice that the easy jobs still come to your shared business while the lucrative ones quietly go to his. He says there is nothing wrong with a little outside work. You suspect he has been competing with the company you own together, using its people and its relationships to do it. The question is whether the law sees a betrayal or just ordinary business.
In Illinois, partners and co-owners are not strangers dealing at arm’s length. They stand in a fiduciary relationship, the most demanding standard the law imposes outside a trust, and conduct that would be unremarkable between competitors can be a breach between partners. Knowing where that line sits tells you whether you have a grievance or a case, and it is just as important if you are the partner being accused.
What does an Illinois business partner owe his partners?
Under the Uniform Partnership Act, 805 ILCS 206/404, every partner owes the partnership and the other partners a duty of loyalty and a duty of care, and the partnership agreement may not eliminate the obligation of good faith and fair dealing. The duty of loyalty bars a partner from competing with the partnership, from taking its opportunities, and from profiting secretly at its expense. The Illinois Supreme Court in Couri v. Couri put it plainly, holding that a fiduciary relationship exists between partners and that each is bound to exercise the utmost good faith and honesty in all dealings relating to the partnership. Utmost good faith is a high bar, and it is the partner’s to meet.
Does discretion in the agreement let a partner do as he pleases?
No. Even broad contractual discretion is fenced in by the fiduciary duty. In Labovitz v. Dolan, the appellate court held that a general partner given sole discretion over distributions still had to exercise it in good faith, and could not wield it to force the limited partners to sell out on bad terms. The court explained that the discretion was encumbered by a supreme duty of fairness, honesty, good faith, and loyalty. A partner who hides behind a clause while using it to squeeze his co-owners has not exercised discretion, he has abused it.
Do these duties apply to LLC members too?
They can. In Anest v. Audino, the appellate court recognized that members in a member-managed LLC owe one another fiduciary duties of loyalty and care, and applied the corporate opportunity doctrine to a member who took for himself a chance that belonged to the company. The form of the business matters to the details, but the principle carries across partnerships, closely held corporations, and member-managed LLCs. You can read more in our discussion of how Illinois protects owners from fiduciary breaches in closely held companies and our overview of the duty of good faith.
When the duty is breached, the remedies are strong. A court can order an accounting, can make the disloyal partner disgorge the profits he earned from the breach, can award the partnership its damages, and in a fitting case can impose a constructive trust on what he took. The defense side is just as real and worth stating honestly. Not every outside venture is a breach, a partner may pursue opportunities the company genuinely declined or could never have taken, and the business judgment of how to run the company is not disloyalty merely because a co-owner disagrees. The case turns on the specific facts of what was taken, what was disclosed, and what the company could have done with the chance.
Three steps protect you early. First, preserve the evidence of the competing conduct, the diverted jobs, the shared resources, the customers who moved, because a fiduciary case is built on a documented pattern. Second, separate a true breach from a permissible side venture before you accuse, since the distinction decides the claim and an overstated charge can rebound on you. Third, read the partnership or operating agreement, because while it cannot erase the duty of good faith, it can define duties and disclosures in ways that shape the fight.
A fiduciary duty is a promise the law enforces even when the partners never wrote it down. When a partner breaks it, Illinois gives the others a way to recover what was taken and to hold him to the standard he accepted the day the business began.
What is the corporate opportunity doctrine?
It is the rule that stops an owner from taking for himself a business chance that belonged to the company. If an opportunity comes to a partner or member in that capacity, falls within the company’s line of business, and is one the company could have pursued, the fiduciary must offer it to the company before taking it personally. The appellate court applied exactly this reasoning in Anest v. Audino, holding a member to account for seizing an opportunity that belonged to the LLC. A partner who quietly routes the good jobs to a company he owns alone is the classic violation.
When is competition or an outside venture not a breach?
The honest answer is that not every side business is disloyalty, and a fair statement of the law has to say so. A partner may pursue an opportunity the company genuinely considered and declined, or one outside its line of business, or one taken after a clean withdrawal and full disclosure. Disagreement about strategy is not a breach, and the business judgment of how to run the company is protected even when a co-owner would have chosen differently. The line turns on disclosure, on whether the chance belonged to the company, and on whether the fiduciary used the company’s people, money, or information to take it.
What can I recover if a partner breached his duty?
The remedies are designed to strip the gain from the breach, not merely to compensate the loss. A court can order an accounting, can require the disloyal partner to disgorge the profits he earned from the diverted business, can award the company or the partners their damages, and in a proper case can impose a constructive trust on the assets or opportunities he wrongfully took. Because the duty is one of utmost good faith, courts have real latitude to fashion a remedy that fits the betrayal.
Do these duties end when the partnership breaks up?
Not immediately. A partner’s duties continue through the winding up of the business, and a partner cannot use the dissolution itself as cover to grab assets, clients, or opportunities that belong to the partnership. The obligation of good faith follows the relationship to its actual close, not just to the moment one partner decides he is done.
What our clients say
“Peter and Terry went above and beyond to help me through a legal battle with a business partner who was trying to hold me responsible for an entire case. They brought him to justice, held him responsible, and settled the case. I was very pleased with the results.”
Tony N., in one of our Google reviews. DiTommaso Lubin, P.C. holds a 5.0 rating across more than one hundred client reviews on its Chicago and Oakbrook Terrace Google profiles. Prior results do not guarantee a similar outcome, and every case turns on its own facts.
If a business partner is competing against the company you own together or diverting its opportunities, Illinois imposes a fiduciary duty with real remedies behind it. Call DiTommaso Lubin, P.C. at 630-333-0333 for a free consultation, or contact us online. This post is for general information and is not legal advice.
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Peter S. Lubin and James V. DiTommaso are Chicago business litigation lawyers who try cases throughout Illinois. Peter is a graduate of the University of Chicago Law School, where he has taught trial practice for decades, and he has been recognized as an Illinois Super Lawyer. He has served as lead counsel in more than one hundred class actions and has handled more than one hundred shareholder, LLC, derivative, breach of fiduciary duty, and fraud matters, on both the plaintiff and the defense side. Crain’s Chicago Business credited him with the largest class action settlement of the year for a $40 million recovery in Erikson v. Ameritech, and the firm has been named DuPage County Law Firm of the Year. The firm and its lawyers have represented clients such as McDonald’s, Motorola, and Experian, and have litigated against companies including AT&T and General Motors. James DiTommaso, a graduate of Chicago-Kent College of Law with a certificate in business law, has served with the Illinois Appellate Court and has argued a case before the Illinois Supreme Court. He litigates these disputes in the Illinois trial and appellate courts and in the federal courts. When you hire this firm, the lawyers whose names are on the door are the ones who handle your case.