What Can I Do If My Business PartnerIs Taking Money From the Company?

The company was profitable. Genuinely profitable. You watched it grow, made the operational decisions that produced that growth, and held an ownership interest that entitled you to a share of the returns. Then the majority owner started making decisions you could not explain — passing on a transaction that would have been good for all the owners, moving business to a related entity, making personnel moves that seemed designed to benefit one person at the expense of everyone else. You asked questions. You got answers that did not add up. And the pattern kept going.

What you were watching may have been a majority owner breaching the fiduciary duties they owe to you as a co-owner. In Wisconsin closely held businesses — LLCs, S-corps, closely held corporations — the majority does not have the legal right to use control over the company to benefit themselves at the minority's expense. When they do it anyway, there are legal consequences.

what fiduciary duty means in a closely held business

In a closely held business, majority owners owe fiduciary duties to minority co-owners. These are not vague aspirational obligations. They are enforceable legal duties that require the majority to act with loyalty to the enterprise and to all its owners, to deal fairly in transactions that affect minority interests, and to refrain from self-dealing — using their position of control to redirect business value away from the company and toward themselves.

The duty of loyalty is the most important one in business divorce cases. It prohibits a majority owner from taking for themselves an opportunity that belongs to the company, from acting in the company's name for personal benefit at co-owners' expense, and from structuring transactions or operational decisions to enhance their own position while diminishing what co-owners receive. When that duty is violated, it opens the door to damages, injunctive relief, and — in severe cases — judicial dissolution.

killing a deal to preserve your leverage

In October 2023, a private equity firm submitted a letter of intent to acquire a distribution company. The transaction would have provided all owners with a genuine liquidity event: an operations co-founder would have received a substantial sum in cash at closing, an equity stake in the acquiring entity, and retained his real estate interest.

The majority owner rejected the offer. His stated reason was that it was too low. His later conduct suggests a different reason: the capital investor told the operations co-founder directly — in a conversation that has been documented in a state court case — that he expected to sell the business for substantially more in two to three years. What the majority owner objected to was not the price but the structure: under the PE transaction, he would no longer be the majority operator.

A majority owner who blocks a legitimate third-party transaction — one that would generate fair returns for all owners — in order to preserve a control position is not making a business judgment on behalf of the company. He is making a personal decision that subordinates co-owner interests to his own. That is textbook breach of the duty of loyalty.

the moves made to hide the plan

What makes the conduct alleged in this case particularly significant is not any single act but the sequence. Before the capital investor terminated the operations co-founder, he had already recruited a replacement executive — the operations co-founder's own subordinate — to replace him. He had attempted to make the replacement executive a member of the operating entity without the operations co-founder's consent, in direct violation of the operating agreement's "Absolute Restrictions" provision requiring all-member approval for new equity. And he deactivated security cameras. The operations co-founder later viewed video footage of an employee cutting the camera cords at the majority owner's direction.

You do not disable security cameras as a cost-saving measure. You disable them when you do not want a record of what you are planning. The camera deactivation, combined with the unauthorized equity transfer attempt and the recruitment of a replacement, reflects conduct that the majority understood could not survive scrutiny — which is precisely why concealment was part of the plan.

Fiduciary duty violations in closely held businesses are rarely a single rogue act. They are usually a pattern of decisions that individually might be defended as business judgment but that, taken together, reveal a calculated effort to use majority control for majority benefit at minority expense.

what a breach of fiduciary duty claim can accomplish

In Wisconsin business divorce litigation, fiduciary duty claims serve several functions beyond the damages they may ultimately recover. They establish the factual predicate for injunctive relief, including orders prohibiting the majority from continuing the conduct at issue during the pendency of the case. They support petitions for judicial dissolution on grounds of oppressive conduct. They provide the evidentiary foundation for a receiver appointment to protect business assets while the case is pending. And they shape the damages analysis, because a majority owner who has breached fiduciary duties cannot necessarily claim the benefit of a minority discount or a discounted buyout price.

If the pattern described in this article — blocked transactions, hidden planning, post-separation value-shifting — is something you have seen in your own business, the conduct may be actionable. The earlier you engage counsel, the better positioned you are to document what is happening and pursue remedies before additional value is diverted.