You should take immediate action if you suspect that your business partner is stealing money from a business account. The following are some of the steps you should take and some of the causes of actions you may assert should you suspect that your business partner is stealing or misusing business property.
Business Partner Theft
Business partner theft is often found when a business partner gets greedy or loses sight of where their loyalty lies by stealing money. Should this be discovered, there are certain steps you should take before pursing the various legal options available.
Confirmation
The first thing you should do is to confirm the business partner theft and to make sure that the theft took place and that the partner is the one responsible for the theft. Make sure you have the necessary evidence to prove that your business partner is stealing money. Nothing is worse for the business than to have one partner accusing the other of theft only to later discover it was due to lack of complete access to account books, an inadvertent omission or wrong entry in an account book, or that an employee was the one responsible for the theft. Accusing an innocent partner of stealing money can ruin a good working relationship and could expose you to a lawsuit for defamation, libel, or slander.
Methods to Confirm Business Partner Theft
To confirm your suspicions of a business partner theft you need to establish a trail of evidence that proves fraud or embezzlement. Some suggestions include:
- Set up a monitoring and reporting mechanism to account for all monies taken, used, or dispersed.
- Use a camera catch the thief in the act of stealing; most often used to catch someone taking cash from customers or a cash register.
Fraud
Business partner theft may be fraud which is both a criminal and civil offense. Accordingly, your business partner’s theft could result in jail time and damages. To prove fraud, you generally must prove that your business partner knowingly lied, you reasonably relied on the lie and you suffered harm because of it. Evidence that you knew your business partner was untrustworthy could undermine your fraud case because your reliance may not be reasonable under those circumstances.
Fiduciary Duty
Should be able to prove business partner theft, you may sue your business partner for breach of fiduciary duty. You and your business partner have a fiduciary relationship which is “a relationship in which one person is under a duty to act for the benefit of another on matters within the scope of the relationship.” As a general rule, taking money that belongs to the business and using it for yourself does not benefit the business and goes beyond the scope of proper conduct for a business partner.
Embezzlement
You can file a criminal complaint against your business partner for embezzlement which is defined as “theft/larceny of assets (money or property) by a person in a position of trust or responsibility over those assets.” You likely formed a business relationship with your partner and made him a signer on your business account because you trusted him to act in the business’ best interest. If your business partner stole money from the business, he violated that trust and may, accordingly, be guilty of embezzlement.
Dissolution
You may decide to cut your losses and dissolve the partnership after you learn your business partner has been stealing. Dissolution is the process of bringing your partnership to its legal end. The dissolution process is different in every state; however, it generally involves submitting dissolution paperwork to the state office that processed your business’ formation. Once you dissolve your partnership, you generally may move on with another partner or as a different business entity, such as a corporation.
Damages
The negligent acts of your business partner can subject them to a lawsuit for general negligence because of the damage they have done to the business. A business partner who is stealing money from a business account not only violates their fiduciary duty owed to other partners but also puts the business at risk. They may be liable for any and all harm to the business in addition to the harm you may have suffered.
Defenses to Theft
Remember, your business partner has the right to access business accounts and cash of the business, and can claim that any money taken is for a business-related expense unless you are able to prove the money was diverted so that it could not be later discovered. To prevent this defense you should:
- Document all money the business partner has siphoned off from a business account.
- Establish that the partner did not report money or property in his possession or use the money or property for a business purposes.
- Incorporate rules and procedures for all partners drawing money from the business account in the partnership agreement or contract to make it easier to establish the likelihood of fraud or embezzlement.
- Making sure your business partner cannot establish that he did anything for the business such as repay an outstanding debt or use the cash to make a purchase for the company.
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