Business partners work alongside one another because they are united by a common purpose and goal. Imagine you started a business with someone you trust with specific talents that merged well with your own. The business developed and grew for several years.
However, after looking at your financial records, you discover discrepancies between the amount of money your business receives and pays. For example, you may have sold a product for $100, but the records show you only received $75. The remainder is unaccounted for. Though that is a straightforward example, it could indicate embezzlement, theft, or fraud is afoot. You need to protect yourself and recoup the money that is being stolen from the business.
There are other ways you may uncover illegal actions by your business partners. For example, your business partner takes $10,000 to spend on a conference. It is a legitimate business expense that you and your partner agree on. That money needs to be spent the way you intended it to be. In other words, your partner cannot take a portion of it for personal use. Nor can they use it to pay off personal debts.
If your partner uses any percentage of the conference money to pay for a repair on their home, for instance, then that is an example of fraud.
Step 1 – Investigate
The first step should be to investigate to verify or dispel your suspicions. More than 90% of businesses in America are small businesses. The odds are that when you discover someone stealing, you may not have the infrastructure in place to contact a financial department to look over the records. Furthermore, the fewer checks and balances (and people) you have in place, the easier it may be for someone to steal money. Look closely at bank statements and credit card statements. Have checks or credit cards been used to purchase items with no legitimate business purpose? Has a partner abused their expense account privilege by charging personal expenses to the company? Has an unauthorized credit card account been opened? Have signatures been forged? These are areas where the lion’s share of theft occurs. In our practice, we have seen hundreds of examples of company bank accounts and credit cards being misused, sometimes going unnoticed for years.
For example, your business partner takes $10,000 to spend on a conference. It is a legitimate business expense that you and your partner agree on. That money needs to be spent the way you intended it to be. In other words, your partner cannot take a portion of it for personal use. Nor can they use it to pay off personal debts. If your partner uses any percentage of the conference money to pay for a repair on his home, for instance, then that is an example of fraud.
Step 2 – Gather Evidence
The next step is to gather evidence. Download and save files, especially monthly credit card statements, and bank statements. Obtain actual check copies (front and back). Originals are preferred. Save expense reports and backup records (credit card receipts, checks, etc.) Make a trip to the bank to obtain and verify records, inspect signature cards and ensure there are no unknown accounts or unauthorized signers. If forgery is suspected, gather handwriting samples. Lots of them Save this evidence in a secure location (or preferably two) and protect it from being discovered, lost, or destroyed.
Step 3 – Lawyer Up
Contact a business litigation attorney and ask for advice if any of this mirrors your position.
The specifics of your partnership may matter; Do you have any written partnership agreements that outline your roles and responsibilities? Did your partner’s actions violate the agreement? Another relevant question is whether you have admissible evidence to back your claim. Recall the example of a $100 sale that was only recorded as $75. Having the original receipt (not a copy) may prove the discrepancy.
Fraud / Deceit / Breach of Fiduciary Duties of Loyalty and Care
Fraud and deceit are often based on intentional misrepresentations, whereas concealment occurs when facts are not disclosed. These wrongs arise quite often in the business world and can form the basis for recovery in court. In a partnership setting, another common legal theory is known as “breach of fiduciary duty.”
A fiduciary duty is a commitment to act in the best interests of another person or entity. Broadly speaking, a fiduciary duty is a duty of loyalty and a duty of care. Partners typically owe such duties to each other and the company. Therefore, business partners must act in the best interests of their partner(s) and company. A business partner’s misuse of company funds is an obvious example of a breach of fiduciary duty.
Foldenauer Law Group
At the heart of these cases is a lie. Your business partner lied to be able to use the business’s money in a way you hadn’t intended or agreed to. Foldenauer Law Group has extensive experience handling partnership disputes, including fraud, theft, and breach of fiduciary duties. For more information about how we can resolve your dispute, contact us to schedule a consultation.