Avoid the Ellison-Paramount 'Side Deal' Legal Trap

Key Takeaways

• Document all major business decisions in your operating agreement to prevent claims of fiduciary duty violations that can trigger lawsuits costing $50,000 or more in legal fees.
• Disclose any potential conflicts of interest, such as outside business relationships or personal side deals, to all partners in writing before signing new contracts.
• File your Beneficial Ownership Information (BOI) report with FinCEN by the required deadline to avoid penalties of $591 per day for non-compliance.
• Review the fiduciary standards set by your state's business laws to ensure you're meeting the 'duty of loyalty' required of LLC managers and partners.

Variety reports that a Paramount investor is suing David and Larry Ellison, alleging an illegal side deal with Donald Trump to smooth the way for a Warner Bros. Discovery merger. The lawsuit claims the Ellisons prioritized their own interests over the broader shareholder group by offering political support to secure federal approval for the massive media deal.

You mightn't be trying to buy a movie studio, but the core of this legal fight happens in small businesses every month. When one partner makes a move that benefits them personally while leaving others in the dark, they break the fiduciary duty of loyalty. In a three-person HVAC company or a local dental practice, these 'side deals' usually end in a messy buyout or a lawsuit that drains the company's operating cash.

Why do secret deals kill small partnerships?

Trust is the primary currency in a small business, but the law requires more than a handshake. Most states, including Delaware and California where many entities are registered, have strict rules about the 'duty of loyalty.' This means you must put the business's interests above your own. If you own a landscaping company and you hire your brother's separate supply firm at a 20% markup without telling your partners, you've created a conflict of interest.

The Paramount lawsuit shows that even if you think a deal is 'good for the company,' hiding the details makes it legally vulnerable. When information is withheld, other partners or members lose their right to an informed vote. This is why many owners choose to LLC vs. S-Corp: Cut Self-Employment Tax by $4,000 to formalize their structure, but the structure only works if the operating agreement is followed to the letter.

What does the government require for transparency?

Transparency is no longer just a boardroom suggestion; it's a federal requirement for almost all small businesses. The Corporate Transparency Act now requires most LLCs and small corporations to report who actually owns and controls the company. You can find the specific filing requirements and deadlines at the Financial Crimes Enforcement Network (FinCEN). Failing to disclose who has substantial control over your business can lead to criminal and civil penalties that far outweigh the cost of a few hours of paperwork.

Also, if your business is seeking federal contracts or SBA-backed loans, any undisclosed side deals can lead to disqualification. The Small Business Administration (SBA) maintains strict policies regarding conflicts of interest. If you're using a loan to buy a building, and the seller is secretly your cousin, the bank and the SBA will see that as a high-risk red flag if it wasn't disclosed upfront.

How can you protect your business today?

1. Update your disclosure log. Keep a simple folder or digital file where every partner lists their outside business interests. If you own a rental property that the business uses for storage, that needs to be documented with a clear, fair-market lease.
2. Define 'Major Decisions.' Your operating agreement should list exactly what requires a unanimous vote. This usually includes taking on debt over $10,000, selling significant assets, or entering contracts with family members.
3. Hold annual 'Conflict Checks.' Once a year, sit down with your partners or your board and ask if anyone has new outside ventures. It feels formal, but it prevents a 'he-said, she-said' situation three years down the road.
4. File your BOI Report. If you haven't yet, go to the FinCEN website and complete your Beneficial Ownership Information report. It takes about 20 minutes but protects you from massive daily fines.
5. Standardize your meeting minutes. Even if it's just two of you, write down what you decided and why. If you chose a more expensive vendor because they offered faster delivery, note that so it doesn't look like a kickback later.

Closing this gap in your business doesn't require a high-priced legal team. It just requires being honest about where the money goes and who's really pulling the strings. If the Ellisons lose their case, it will be because they ignored the simple rule of putting the company's shareholders first. Don't make the same mistake with your own partners.

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📋 Disclaimer

This article is for informational purposes only and does not constitute legal, tax, financial, or professional advice. Laws and regulations change frequently, and the information presented may not reflect the most current legal developments. Always consult with a qualified professional (CPA, attorney, financial advisor) before making business decisions based on this content. MyBizNerd may receive compensation through affiliate links, but this never influences our recommendations.

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