If you suspect your business partner is taking money, steering opportunities to themselves, or squeezing you out of the company you helped build, New York law is on your side. Co-owners owe each other fiduciary duties — and when a partner breaks them, you can demand the company’s records, sue to recover what was taken, and push the situation toward a buyout or court intervention. Two things matter most: document the misconduct early, and act before the deadlines run.
(This guide is about a partner behaving badly. If you’ve simply decided to part ways and want your exit options, see our companion guide, Business Divorce in New York: A Co-Owner’s Guide to Buyouts and Dissolution.)
What duties does a business partner owe you in New York?
Co-owners aren’t just contract counterparties — they’re fiduciaries. Partners, corporate officers and directors, controlling shareholders, and the managing members of an LLC all owe duties of loyalty, care, and good faith to the business and, in a close company, to one another. New York’s most famous statement of the rule comes from Meinhard v. Salmon, where the Court of Appeals held co-venturers to “the punctilio of an honor the most sensitive.” In plain terms: your partner can’t put their own pocket ahead of the company’s, and can’t use their inside position to cut you out.
What does self-dealing or a “freeze-out” actually look like?
The conduct usually falls into a few buckets:
- Diverting money or opportunities — paying themselves (or a side company they own) inflated salaries, “consulting fees,” or rent; routing a business opportunity to themselves; running personal expenses through the company.
- Hiding the ball — refusing to share financials, blocking your access to the books, or keeping a second set of numbers.
- The classic freeze-out — cutting off your distributions while they keep drawing a salary, stripping your title or duties, or shutting you out of decisions to pressure you into selling cheap or walking away.
Any of these can be a breach of fiduciary duty — and several can also be outright fraud or conversion.
When does it cross the line into “oppression”?
If you hold a minority stake in a New York corporation, the law has a name for being squeezed out: oppression. Courts judge it against your reasonable expectations — what you reasonably expected when you put in your money and effort: a job, a voice in the business, a share of the profits. When the people in control deliberately defeat those expectations — firing you, cutting off your distributions, shutting you out — that’s oppression (Matter of Kemp & Beatley), and it can open the door to court relief, including a forced buyout of your shares at fair value.
Your remedies — what you can actually do
- Demand the books and records. Shareholders have inspection rights under Business Corporation Law § 624; LLC members under Limited Liability Company Law § 1102. A records demand is usually the first move — it gathers proof and signals you’re serious.
- Sue — directly or derivatively. If the wrong harmed you (e.g., your distributions), that’s a direct claim. If it harmed the company (e.g., looted funds), it’s a derivative claim brought on the company’s behalf, with its own rules.
- Get an accounting, damages, and an injunction to trace and recover diverted money and stop ongoing misconduct.
- Push toward a buyout or dissolution. If the relationship is beyond saving, you may be able to force a buyout of your stake at fair value or petition for dissolution. Those structural exit mechanics — and how courts set “fair value” — are covered in depth in our business divorce guide.
What if my company is an LLC?
It changes your leverage. New York LLCs don’t have the minority-oppression buyout remedy that corporations do; for an LLC, the statutory exit is judicial dissolution under LLC Law § 702, and courts set a high bar. That makes your operating agreement the key document — buyout rights, deadlock provisions, and manager duties usually live there. You can still bring fiduciary-duty, accounting, and fraud claims against a self-dealing manager.
First steps if you suspect it
- Quietly preserve everything — emails, financials, bank records, texts.
- Don’t resign, sign a release, or accept a lowball buyout before you understand your leverage.
- Send a records demand (or have counsel send one).
- Watch the clock. Breach-of-fiduciary-duty claims in New York generally must be brought within three years for money damages, or up to six years where you seek equitable relief or the conduct involves fraud — and evidence disappears fast once a partner knows you’re onto them.
Frequently asked questions
Can I sue my business partner for stealing from the company?
Yes. Taking company money or assets can support claims for breach of fiduciary duty, conversion, and fraud, plus an accounting to trace what was taken. Where the harm fell on the company, the claim is usually brought derivatively on its behalf.
What counts as shareholder “oppression” in New York?
Conduct by those in control that substantially defeats the reasonable expectations a minority owner held when investing — for example, firing them, cutting off distributions, or excluding them from the business they helped build.
My partner won’t show me the company’s financials — is that allowed?
No. Shareholders and LLC members have statutory rights to inspect the books and records, and a refusal can itself be evidence of misconduct. A formal records demand is often the first step toward getting answers.
How long do I have to act?
Generally three years for money-damages claims and up to six years for equitable or fraud-based claims — but move quickly, because evidence and leverage erode fast.
If you think a partner is self-dealing or freezing you out, the sooner you act, the more options you have. Toporowski Law represents New York business owners in partner and shareholder disputes — from records demands and buyouts to litigation. Schedule a consultation.
Attorney Advertising. This article is for general information only and is not legal advice; reading it does not create an attorney-client relationship. Prior results do not guarantee a similar outcome.
