It’s Business, And It’s Personal

What is self-dealing?

| Dec 14, 2020 | Business Contracts & Disputes |

Business problems are not confined to competitors or economic conditions. A person can harm their business partners, associates, or employers when they act in their self-interest and violate their duty of trust.  Violating this fiduciary duty through self-dealing can lead to business litigation and disputes.

Self-dealing

Self-dealing is illegal and occurs when a trusted business agent, known as a fiduciary, acts in their own self-interest in a transaction instead of the best interest of their partners, employer, or clients. It can consist of acts such as using company funds for a personal loan, using insider or nonpublic information to buy or sell stocks and taking over a deal or opportunity for oneself instead of their company or partners.

Fiduciaries who engage in self-dealing may include trustees, corporate officers, board members, partners, attorneys, and financial advisors. Self-dealing may be attempted to enrich another person and not the individual committing the act.

Examples

There are many ways to engage in self-dealing. These acts include:

  • A business partner going after an opportunity that was meant for the entire partnership and not informing the other partners about its existence.
  • A company officer awarding a contract to a vendor only if that vendor hired their child.
  • A website manager outsourcing some work to a side company they owned at an inflated price and not informing the website management.

Non-profits

Under federal law, the Internal Revenue Service may impose a five percent tax on each act of self-dealing by a disqualified person with a private foundation. Disqualified persons may include a trustee, director, officer, relative or key contributor.

The law prohibits transactions including loans, leases, sales, some compensation, and asset transfers to any disqualified person.

An attorney can help protect business operations and address this breach of a fiduciary duty. They can also take legal action when necessary to protect these interests.

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