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What Can I Do If My Business Partner Is Wrongfully Taking Company Funds?

If you think about it, a business partnership is no different from any other relationship. It cannot be successful without a strong foundation. That means that you and partner(s) must trust and respect one another.  It also helps if you share the same values and goals, and agree on how to accomplish business objectives.

That being stated, even the strongest foundation can crumble. Even the strongest partnership can implode – especially when there is suspicion or proof of wrongdoing. So what can you do if your business partner is wrongfully taking money?

Make sure you have sufficient evidence of wrongdoing

Before you do anything else, take a deep breath. Gather your thoughts and assess the situation rationally, not emotionally . The worst thing you can do is to create an ugly situation by acting solely on your suspicions, or out of anger.

Instead, consult qualified financial and legal professionals. An experienced Los Angeles business litigation lawyer can share strategies for finding proof of wrongdoing. These may include but are not limited to:

  • Monitoring all financial accounts, and tracking every outgoing and incoming transaction.
  •  Requiring comprehensive receipts for all business expenses.
  • Requiring original receipts, not copies.
  • Reviewing any ATM withdrawals made with a business debit or credit card for proof of inappropriate transactions.
  • Installing at least one camera to monitor relevant activity at any cash register(s) used by your business.

If you find additional evidence to support your suspicions, our Los Angeles business attorneys can determine if you should pursue criminal charges or a civil claim.

Your legal options are based on the specific circumstances of your case

From a legal standpoint, business partnerships tend to be fairly complicated. This is largely because each one is unique. Depending on the type of business, you may or may not have a written partnership agreement, or prescribed organization. The only constant is that state law governs all California business partnerships.

Therefore, in absence of an applicable agreement, a business partner cannot take company funds for their own use. Doing so may be considered fraud, embezzlement or theft, all of which have criminal and/or civil repercussions.

Proving fraud, embezzlement and theft

Fraud  occurs when your business partner takes company money on the pretense of using it for business purposes, but actually takes it for personal use. Examples may include:  

  • Wrongful taking and use of business funds to pay off personal debt.
  • Wrongful taking and use of business funds to purchase goods or services for personal purposes.
  • Wrongful taking and use of business funds to facilitate unauthorized business activities for personal gain.

To prove your partner perpetrated fraud, you must have sufficient evidence that:

  • He or she intentionally lied to you.
  • You had no valid reason to question or doubt the lie.
  • Your business incurred financial losses or other damages because you believed the lie.

Keep in mind, however, that you may not have a viable case based on fraud if your business partner can prove that he or she has a reputation for trustworthiness.

Embezzlement occurs when someone who holds a position of trust – such as your business partner – steals funds from company accounts. Patterns showing unusual activity (withdrawals and transfers) from accounts your business partner can access may serve as proof of embezzlement.

Theft is simply defined as the wrongful taking of business funds, thereby causing financial losses. This would most likely happen in a retail setting, where your business partner could easily access money in a cash register. It could also happen in an office setting, where money is kept in a safe or lockbox. Video surveillance showing your business partner taking the money without permission or reasonable cause may serve as proof of theft.

Pursuing a civil claim based on breach of fiduciary duty 

You may also be able to pursue a civil claim based on breach of fiduciary duty. In other words, you may be able to sue your business partner for violating his or her legal obligation to act in your best interest with regards to the business. Clearly, the wrongful taking of company funds is not acting in your best interests. To have a viable claim on this basis, however, you must be able to trace the loss of funds to misconduct, rather than accounting errors or similar mistakes.

In any case, the dedicated business litigation lawyers at the Law Office of Parag L. Amin P.C. are here to help. Contact us to schedule an initial assessment of your case online or by phone, today.

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PLEASE NOTE: This is not a representation, warranty, or guarantee of a future result or outcome. Every case is different just like every one of our clients.

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