Key Takeaways:

  • If your business partner commits fraud, legal action, including civil and criminal charges, may be necessary.
  • Fraud can take various forms, including embezzlement, intellectual property theft, and breaches of fiduciary duty.
  • Strong financial controls, transparency, and legal documentation help prevent fraudulent activities.
  • Steps to address fraud include gathering evidence, consulting an attorney, and potentially dissolving the partnership.
  • Legal remedies include recovering stolen funds, filing a lawsuit, or pursuing criminal charges.
  • UpCounsel connects individuals with experienced business attorneys for legal support in handling partnership fraud cases.

A business partner stealing money from the partnership's capital or revenue isn't unusual. However, doing so is criminal and absolutely unacceptable. Furthermore, money isn't the only thing that can be stolen by unscrupulous individuals in a partnership.

Can Your Stealing Business Partner Be Prosecuted?

Your business partner is the individual or corporate entity, who has a legally binding stake of ownership or a business contract with you. Therefore, if your business partner is caught stealing from the partnership, they may be prosecuted. It's irrelevant whether the relationship in question is business-to-business, person-to-person, or person-to-business. If an entity illegally takes a company's assets for personal profit without authorization, it's theft.

Signs That Your Business Partner May Be Stealing

Recognizing the signs of fraud early can help you take swift action. Some warning signs include:

  • Unexplained financial discrepancies – Frequent mismatches in bookkeeping or financial statements.
  • Secretive behavior – A partner who withholds information, avoids discussions about finances, or restricts your access to records.
  • Unapproved expenses – Payments or withdrawals without proper documentation.
  • Unusual lifestyle changes – A business partner suddenly living beyond their known means.
  • Missing inventory or assets – Physical theft of goods, supplies, or business property.

Physical Theft

Physical theft is when an entity takes item(s) or cash that belong(s) to the business without proper permission, to the disadvantage of the business.

Forgery and Document Tampering

Fraudulent business partners may engage in forgery by altering business records, contracts, or financial documents to manipulate financial outcomes. This can include:

  • Signing checks without authorization.
  • Falsifying invoices or receipts.
  • Altering official business agreements or financial records.
  • Creating fake vendors to funnel money.

If you suspect forgery, securing original documents, auditing financial transactions, and consulting an attorney are crucial steps.

Intellectual Property Theft

Intellectual property theft is the use of trade secrets and ideas without the owner's authorization.

Fraud

Fraud is when a business partner takes money in the name of business endeavors but uses it for their personal purposes or for some other business. Fraud is a criminal and civil offense and can lead to imprisonment as well as claims for damages. In order to prove that your partner has committed fraud, you need to show that your partner deliberately lied and that you reasonably believed the lie and suffered damages as a result. However, if there's proof that your partner has a reputation for trustworthiness, the case could turn against you.

Steps to Take if Your Business Partner Commits Fraud

If you discover fraudulent activity, take the following steps to protect yourself and your business:

  1. Gather Evidence – Collect emails, financial records, contracts, and any other relevant documents.
  2. Engage a Forensic Accountant – A forensic accountant can analyze financial discrepancies and provide expert testimony.
  3. Secure Business Assets – If possible, restrict your partner’s access to financial accounts and company assets.
  4. Consult a Business Attorney – A lawyer can advise on the best course of action, whether through negotiation, litigation, or dissolution.
  5. Determine Legal Action – You may file a lawsuit for breach of contract, fiduciary duty, or fraud. Criminal charges may also be pursued if warranted.
  6. Consider Partnership Dissolution – In cases of severe fraud, dissolving the partnership may be the best option.

Embezzlement

Embezzlement is committed when someone in an office of trust steals the assets of a company. This mostly happens when a partner can access the funds in a financial account.

Breaching a Fiduciary Duty

Fiduciary (or trustee-related) duty is breached when a trustee proves untrustworthy by misappropriating the funds in a trust. Illegally taking money from a business's account isn't within the scope of the fiduciary relationship could be considered a breach of duty. There must be evidence to prove a theft and show there were no mistakes or omissions in an accounting record.

Recovering Stolen Business Assets

If your partner has misappropriated funds, you may have legal options to recover the money, including:

  • Civil Lawsuits – File a lawsuit seeking damages and asset recovery.
  • Business Buyout – If your partner agrees, you may negotiate a buyout to remove them from the business.
  • Court-Ordered Restitution – If criminal charges are filed, a court may require the partner to repay the stolen funds.
  • Injunctions – A court may issue an order preventing the fraudulent partner from further harming the business.

Precautions

Theft takes a certain pattern. Therefore, finding a certain pattern can serve partly as evidence. To prevent theft, you can use controls on your accounts and request detailed, authentic receipts for every expense.

You can also monitor ATM withdrawals on a company's debit or credit card. If you use a cash register, have a camera installed to record who removes money.

Preventing Business Partner Fraud

To protect your business from fraud, consider the following preventive measures:

  • Implement Dual Authorization – Require two signatures for financial transactions above a certain threshold.
  • Regular Audits – Conduct routine internal and external audits to detect irregularities.
  • Legal Agreements – Ensure that your partnership agreement includes clear provisions on financial oversight, dispute resolution, and fraud consequences.
  • Digital Transparency – Use accounting software that tracks all financial transactions and restricts unauthorized access.
  • Strict Expense Policies – Establish guidelines for business expenses and require proper documentation.

Get a Lawyer

Decide what kind of theft you're dealing with and decide whether to prosecute or not. Your lawyer can help with these decisions and help negotiate with your defaulting partner or his lawyer. You can also claim civil financial damages for a violation of a fiduciary contract and recovery of stolen goods and money from fraud, embezzlement, or physical theft.

In order to recover stolen funds, you may need to officially dissolve the company. Of course, embezzlement is also grounds to fire a thieving partner.

Never go it alone. Always get the help of a qualified lawyer. Handle these matters legally and with care so justice can be served without complications. Your lawyer can help to recover your claims for damages maximally and also effectively handle the case to achieve your goals.

How an Attorney Can Help in Business Fraud Cases

An experienced attorney can provide critical legal support, including:

  • Legal Analysis – Assessing whether the partner’s actions constitute civil fraud, criminal fraud, or both.
  • Negotiation and Mediation – Attempting to resolve disputes before escalating to litigation.
  • Litigation Support – Representing you in court to seek damages, dissolution, or criminal charges.
  • Contract Review and Updates – Strengthening partnership agreements to prevent future issues.

Court Proceedings

The theft should be reported so that there is a record of how it occurred, how you discovered it, and what evidence you have to prove it. An investigation by law enforcement will then take place to determine a reasonable cause to follow up the case and validate the evidence.

The defendant will be arrested and taken to court. After which the following steps will be taken:

  • The allegation of stealing will be read to the defendant
  • The defendant will enter a plea
  • The hearing will be determined
  • The defendant will either be detained or let go on bail, depending on the accusation and progress of the investigation.

Then, the case will proceed to trial. As the prosecuting party, you will have to provide evidence for the charges. The defendant is considered innocent until declared guilty by the court. Presented evidence will be verified to prove the defendant's guilt. The defendant will be sentenced if found guilty.

Statute of Limitations on Business Fraud Cases

The timeline for filing a fraud lawsuit varies by state, but most jurisdictions have a statute of limitations ranging from 2 to 6 years. If fraud is discovered later, some states allow for an extension based on the "discovery rule." Consulting a lawyer ensures you act within the legal timeframe.

Frequently Asked Questions

1. What legal action can I take if my business partner commits fraud?

You can file a civil lawsuit, seek restitution, or press criminal charges. Consulting an attorney will help determine the best course of action.

2. Can I remove my business partner from the company if they stole money?

Yes, if your partnership agreement allows it. Otherwise, you may need to dissolve the partnership or negotiate a buyout.

3. How can I prove my business partner is committing fraud?

Gather evidence such as financial records, emails, contracts, and witness statements. A forensic accountant or lawyer can help build a case.

4. What is the penalty for business fraud?

Penalties range from fines and restitution to imprisonment, depending on the severity of the fraud and applicable state laws.

5. How can I prevent business partner fraud in the future?

Implement financial oversight, require dual authorization for transactions, conduct regular audits, and have a well-drafted partnership agreement.

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