Can You Sue Your Partner for Embezzlement in Business?

When people think of business theft — also referred to as embezzlement — criminal activity is usually what comes to mind. While embezzlement is typically a white-collar crime that can come with serious legal ramifications, including jail time and substantial fines, a business partner who embezzled or stole money can also be held civilly liable for their wrongful act. If you or your business suffered financial harm due to the embezzlement of a business partner, you may be entitled to commence a civil lawsuit, in addition to filing any applicable criminal charges.

Suing for a Partner’s Theft or Embezzlement in Business

Unfortunately, occurrences of theft and embezzlement in business are not uncommon. If you have discovered that your business partner was embezzling or stealing money, physical property, intellectual property, or other assets, you may be wondering whether you have any legal recourse. Even if you file criminal charges for embezzlement in business, you may still be able to hold the individual liable in a civil lawsuit — and recover your damages.

Depending on the facts and circumstances of the case, there are several grounds upon which you may be able to base a civil lawsuit. For instance, if your business partner committed the theft through fraudulent conduct, you may be able to pursue a civil claim for fraud. You might also be entitled to commence a claim for a breach of fiduciary duty, breach of contract, misrepresentation, or other grounds. In doing so, you may be able to recover your monetary damages — including compensatory, incidental, consequential, and liquidated damages.

You might also be entitled to punitive damages in limited cases where the defendant’s conduct was particularly egregious.

Commencing a Civil Action for Fraud

There are various types of fraud that can occur in business. For instance, a business partner may wrongfully take and use business funds to satisfy a personal debt or purchase goods for personal purposes. They might also use business funds for unauthorized business activity. To prove that your business partner committed fraud, you must satisfy each of the following elements:

• Your business partner made false statements of material fact;
• Your business partner knew the statements were false, believed them to be false, or made the statements in reckless disregard of the truth;
• Your business partner made the statements to induce you to act;
• You reasonably and justifiably relied on the false statement; and
• You suffered damages because of the false statement.

If you suspect that your business partner has committed fraud, it’s important to take immediate action to prevent further harm to the company. However, it’s crucial to have sufficient evidence that fraud occurred — this can come in the form of receipts, fraudulent invoices or financial transactions, bookkeeping records, and other documentation.

Suing a Business Partner for Breach of Fiduciary Duty

Unfortunately, embezzlement in business is not uncommon. A well-drafted partnership agreement can help to resolve conflicts in advance, specify authorized behavior, limit partners from taking funds out of accounts for personal use, and prevent partners from making significant purchases.

If your business partner committed fraud or embezzled money from the company, they have also breached their fiduciary duty. Under Illinois law, a business partner has three primary duties. These include 1) accounting for profits, property, opportunities, or other benefits derived by them; 2) refraining from dealing with the partnership as a party with an adverse interest or on behalf of a party with an adverse interest to the partnership; and 3) refraining from competing with the partnership.

Notably, a business partner’s fiduciary duty also encompasses the duty of honesty, loyalty, fair dealing, and good faith. A breach of fiduciary duty in a business relationship is a serious matter for which the aggrieved party may be able to commence a lawsuit to recover their damages.

Preventing Embezzlement in Business With a Partnership Agreement

Although a partnership agreement is not required by law, it is crucial to have one in place to safeguard the company. A well-drafted partnership agreement can help to resolve conflicts in advance, specify authorized behavior, limit partners from taking funds out of accounts for personal use, and prevent partners from making significant purchases. A partnership agreement should also include a provision for dissolution procedures and the circumstances under which the partnership can be dissolved.

In the event a partnership does not have an agreement in place, it can sometimes be more difficult to demonstrate that a partner’s alleged misconduct constitutes fraud. If there is no written partnership agreement that specifies what qualifies as unauthorized conduct, it will be necessary to rely on other documentary evidence to prove embezzlement in business. A skilled business litigation attorney can investigate your case and assist you with uncovering the evidence necessary to establish your claim.

Contact an Experienced Illinois Business Litigation Attorney

If you have reason to believe your business partner embezzled assets or stole from the company, it’s critical to have an experienced business law attorney on your side who can advise you regarding your legal recourse. Located in Rolling Meadows, Litico Law Group provides reliable representation to business owners and entrepreneurs throughout Illinois for a wide variety of business matters. We welcome you to contact us by filling out our online form or call (847) 307-5942 to schedule a consultation to learn how we can assist you.