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 $40 million letter of intent to acquire the metals distribution company. The transaction would have provided all owners with a genuine liquidity event: the operations co-founder would have received approximately $7 million in cash at closing, a 15% equity stake in the acquiring entity, and retained his real estate interest valued at $5 to $6.6 million. The capital investor, with his 51% majority position, would have received approximately $15 million in cash and a 34% equity stake in the new entity.

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 the pleadings in a 2024 Wisconsin case between co-owners of a metals distribution company, filed in Waukesha County Circuit Court — that he expected to sell the business for $50 to $70 million 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. He would hold 34% in the new entity rather than 51%.

A majority owner who blocks a legitimate third-party transaction — one that would generate fair returns for all owners — in order to preserve his 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 in July 2024, he had already recruited the replacement executive — the operations co-founder's own subordinate at the Illinois facility — to replace him. He had attempted to make the replacement executive a member of the Wisconsin 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 approximately 25 security cameras at the Wisconsin facility. 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.

self-dealing after the termination

The alleged misconduct did not stop with the operations co-founder's termination on July 11, 2024. After removing him from operations, the majority owner began routing the Wisconsin entity's customer orders to the Illinois facility — the entity where the operations co-founder has a smaller ownership interest. The effect of routing customer orders away from the Wisconsin entity and toward the Illinois facility is to artificially deflate the value of the Wisconsin entity while inflating the value of an entity where the capital investor's relative position is stronger and the operations co-founder's is weaker.

This is not a secondary or incidental allegation. If a majority owner uses his post-termination control over customer relationships and order routing to move value between entities in a way that benefits himself and harms the co-owner he just removed, he is using the company's assets for personal gain. That is exactly what the duty of loyalty prohibits.

Post-separation misconduct of this kind is also practically significant because it is ongoing and documentable. Every order routed away from the Wisconsin entity is a data point. Revenue records, customer correspondence, and shipping documentation can establish the pattern. Courts take seriously the majority owner who continues to harm co-owner interests after the litigation has begun.

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.

Barton Cerjak S.C. represents business owners in Wisconsin fiduciary duty and business divorce litigation, including the operations co-founder in his pending case. Contact us if you are facing similar conduct.