Can an Owner Sue a Business They Own?

Running a business is one of life’s greatest opportunities. Whether you started the business or became the owner through inheritance or by purchasing another company, it’s a massive opportunity to build generational wealth. Unfortunately, disputes arise even when you’re the owner.

One question that often comes up is whether a business owner can sue their own business. The simple answer to this is yes, it is possible. But, the circumstances will dictate how the litigation will work and who is held liable for the damages.

Breach of Contract

One common scenario where a business owner may sue their own business is when there has been a breach of contract. If the business has entered into a contractual agreement with the owner, such as an employment contract, partnership agreement, or loan agreement, and the business fails to fulfill its obligations under that contract, the owner may have grounds to sue.

In this case, the business entity would be the defendant, and the owner would be the plaintiff. The owner could seek damages or performance as remedies for the breach. Performance remedies may be as simple as compelling the business to fulfill its contractual obligations as originally agreed upon.

Shareholder Disputes

Another scenario in which an owner may sue their own business is when there are shareholder disputes. If the business has multiple owners, disagreements can arise over various matters, such as the distribution of profits, the company’s direction, or decision-making. In such cases, an owner may choose to take legal action against the business or other shareholders.

The liability for payments would depend on the specific nature of the dispute and the outcome of the lawsuit. If the court rules in favor of the suing owner, the business or other shareholders may be required to compensate the owner for their losses or buy out their ownership stake. Alternatively, the court may order a change in the company’s management or corporate governance structure.

A lawsuit of this nature can have a profound impact on the owner’s relationship with the business and co-owners. It may lead to a resolution of the dispute and a more harmonious business environment, or it could result in the owner’s exit from the business. In worst-case scenarios, the business is dissolved entirely.

Corporate Mismanagement

Owners may also sue their own business if they believe that the business has been mismanaged or that there has been fraudulent activity by company management. In these cases, the owner may bring a lawsuit against the business’s management or board of directors to seek accountability and compensation for any losses incurred due to mismanagement.

The liability for payments in this scenario would typically fall on the individuals responsible for the mismanagement or fraudulent activities within the business. This could include directors, officers, or other employees who played a role in the wrongdoing.

Contact a Business Litigation Attorney

Ultimately, business owners can sue their own businesses in certain circumstances. This inevitably creates tension and puts the business at risk, so it’s important to handle the situation properly.

For expert guidance and legal support in addressing issues related to business ownership and litigation, contact the Law Office of Ray Garcia. Our experienced attorneys are here to help you protect your interests and find the best possible resolution for your situation.

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