What Happens When a Partner or Co-Owner is Stealing From the Company?

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What should you do if you suspect that one of your partners or a co-owner is stealing money from the company? What proof are you required to obtain, and what course of action must you take to protect your interests? The first and most important thing to do is clear your mind and do your best to remove emotion from the equation for now. A mind filled with anger is distracted and cannot think clearly.

The next step is to contact an experienced business and litigation attorney who can guide you through the process.

Obtain Genuine Evidence

The next step is to obtain real evidence that theft is occurring and to identify the person or persons involved. It is not prudent to simply accuse a partner or co-owner of stealing money from the business without solid evidence. There may
have been a simple mistake, or an accounting error, or a missed entry in the books. You’re looking for a pattern.

Place controls on all accounts, and track every amount going in and out. Require detailed receipts for every expenditure no matter how small or mundane. Receipts should be printed on the merchant’s own receipt form or automated paper receipt, and should include a detail of all items purchased. Withdraws through an ATM from a company debit or credit card are a primary place to look. If your business uses a cash register, place a camera or multiple cameras on the drawer to identify whom, specifically, is taking money from the drawer.

What are the Legal Steps in Resolving This Dispute?

If your business associate is taking money under a business pretext and using it for personal reasons or diverting it to another venture this is “fraud.” Your business partner lied, you believed and relied upon the lie and suffered losses or “damages” as a result of your business partner’s deceit. Your associate may be guilty of “embezzlement”, which is the theft of money or a business asset by a person in a position of trust within your company. Finally, your business partner has broken their “fiduciary duty” to protect the company in which they are a partner, co-owner or shareholder.

The criminal offenses of fraud and embezzlement are strong bargaining chips to recover the lost money or property, and remove the individual from the company. Your attorney will guide you through the process of whether or not to file criminal charges, and manage the negotiations with your business partner or their attorney. You are entitled to recover “civil” financial damages for the breach of fiduciary duty, as well as to recover the money or assets that were stolen. The breach of fiduciary duty on the part of the thief also put your company at risk, and the resulting damages to the company’s performance and any financial impact on the performance of your business adds to the civil damages that can be recovered.

You Should Not Attempt to Manage This On Your Own

Proving that a business partner, co-owner or shareholder is stealing from the company is serious business. The stakes can be quite high, both in terms of the actual money or assets involved and the damage to your company and its performance. Each step in the process must be carefully planned and executed, and the advice of a seasoned and experienced business and litigation attorney will ensure that you’ve covered every base, while following all appropriate laws and procedures identified within your corporate documents. Your attorney will maximize the amount you are able to recover, and has the negotiation skills and leverage to successfully accomplish your goals for this situation.

ABOUT THE AUTHOR: Daniel Watkins
Mr. Watkins is an experienced litigator and true trial attorney with over 50 Jury and Bench trials to his credit in 25 years of practice. He has successfully represented both large companies and individuals, and achieved substantial victories in well-publicized trials throughout California and Wisconsin.

Mr. Watkins has successfully tried and litigated cases in the areas of Healthcare Compliance, Commercial Litigation, Unfair Business Practices, Fraud, Breach of Contract, Battery, Premises Liability, Product Defect, Medical Malpractice, Discrimination, Sexual Harassment, Construction Defect, as well as Unfair Competition, Defamation, and Trade Secret. Mr. Watkins has over a decade of experience serving as Cumis counsel and Panel counsel for some of the largest insurance companies in the country. He is experienced in business and corporate formation and administration, as well as all forms of alternative dispute resolution, including binding arbitration and mediation.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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