Steps To Take if Your Partner Is Embezzling or Stealing
Disorganization, financial difficulties, and greed can lead to a partner taking more from a business than they’re entitled. This, of course, comes at the expense of their partners. In closely held businesses, there are unfortunately numerous ways to cheat. A few examples are a partner funneling money to another entity he or she owns under the guise of legitimate business expenses, a partner unilaterally issuing unjustified salary or “bonuses” to avoid paying out profits to other partners, and a partner using company funds on personal expenses in a surreptitious or disproportionate manner.
If you’re in a business partnership, whether as a partner, shareholder, or member, and you suspect your partner is stealing, embezzling, or otherwise cheating the company, take actions to enable yourself to prove it. Save all financial data that you can. Have access to the company QuickBooks file? Download it, and keep the file somewhere safe. The same goes for bank account statements and credit card statements. Save tax returns, payroll records, invoices, and receipts. If you confront your partner, he or she could, even if illegally, revoke your access to these documents or even to the business generally. Your partner may also start to cover his or her tracks. It’s wise to develop a plan with your attorney before you raise the issue.
Beyond securing accessible records, you should work with your attorney to develop a strategy for rectifying the problem. Tools at you and your attorney’s disposal include statutorily-protected demands for documents, corporate actions to end the misappropriation, forensic accounting audits, removal of the partner, or a fair value buyout of your interest in the company. In some cases, these matters are resolved through negotiation. In others, lawsuits are ultimately necessary.
When partnership problems become apparent, seeking your attorney’s help immediately generally pays dividends in the long run. Self-help early in disputes can create expensive problems to solve in litigation.