Key Takeaways

  • A business partner taking money without permission may be liable for embezzlement, breach of fiduciary duty, fraud, or theft.
  • Legal remedies include demanding repayment, mediation, partnership dissolution, and civil or criminal litigation.
  • Evidence collection is critical; use financial audits, transaction records, and security footage.
  • Preventative measures include partnership agreements, financial controls, and limited access to accounts.
  • Consulting an attorney can help clarify options, assess damages, and determine the best legal course of action.

Learning that someone is stealing money from your own company is very distressing and difficult to process, but it's even worse when it is a business partner or someone with a stake in the ownership of your business. If this happens, this person is breaking the law and can be prosecuted. It is a very emotional experience to discover your trusted partner is stealing from you or the company. It is considered stealing anytime someone takes something from the business for personal gain. There are several different types of stealing:

Physical Theft/ Intellectual Property Theft

  • Physical theft is when someone takes cash or physical items from the business to use for their own personal gain.
  • Intellectual theft is when someone takes or uses ideas or trade secrets without permission and the use is not in the best interest of the company.

Fraud

This is when someone says they are using money or assets for the business, but instead uses it for personal reasons or diverts it.

  • Fraud is not just a civil offense, but a criminal one as well. Those who commit fraud may face jail time as well as restitution of damages.
  • In order to prove fraud, it must be proven that your partner lied, that you accepted and relied on this lie and that you suffered damages or harm from it.
  • If it can be proven that you were (or should have been) aware that your partner was untrustworthy, it could actually undermine your fraud case, as it wouldn't be considered reasonable that you would rely on his/her word.

Embezzlement

Embezzlement is basically theft, but it is by someone in charge of, or with power over, the assets that are stolen or misused.

  • Embezzlement often occurs when a partner is a signatory on a financial account.
  • The term embezzlement covers many situations, which can include a high ranking executive diverting company funds to their own account, or a cashier pocketing money from their till.
  • Most laws surrounding embezzlement are state laws. Typically, it must be proven that the employee had access to the asset or money due to their position in the company and that the person misused this authority for their own gain.

Breach of Fiduciary Duty

This occurs when you have a fiduciary relationship with your partner and your partner is under duty to act for the benefit of another, either yourself or the business.

  • If you know your partner has been stealing money from business accounts, you can sue for breach of fiduciary duty.
  • This action is not to the benefit of the business and is also outside the scope of the relationship in general.
  • Since this also put your company at risk, any resulting business losses can also be included in the civil damages.

If you think that your business partner has stolen from the company in some way, it can be difficult to prove. You need to obtain evidence that points to the guilty party involved. It is not recommended to just confront the person in case it is a simple mistake or missed entry. This could cause animosity and mistrust between the partners in the future.

If your business is a partnership, always fall back to your written partnership agreement if you have one. Otherwise, it may be their word against yours as to what the partners were allowed to use the funds for.

Often, theft follows a pattern, and you can use this pattern to collect the evidence that you need. It is recommended to put controls on the accounts and require merchant receipts for expenses to catch or deter theft. It is also prudent to monitor all ATM withdrawals and monitor all cash registers with security cameras. Make sure that you always keep accurate books so that you can prove income and expenses.

If you are a victim of theft of your business, you should dissolve the partnership and recover the lost assets. An attorney can help you decide whether to prosecute and can assist with negotiations with your former partner or their attorney. In certain cases, you may also be able to claim business damages or loss of profits in a civil suit as well.

How to Prove a Business Partner Is Taking Money Without Permission

To take legal action against a business partner taking money without permission, you must have sufficient evidence. Key steps include:

  • Audit financial records: Review bank accounts, balance sheets, and bookkeeping entries for discrepancies or unexplained withdrawals.
  • Collect documentation: Save receipts, emails, text messages, or contracts showing misuse of company funds.
  • Monitor behavior patterns: If irregularities appear at regular intervals (e.g., payroll, ATM usage), they may establish a pattern of misconduct.
  • Use surveillance or digital tracking: Security footage and IP logs for remote transactions can further substantiate claims.

Consulting a forensic accountant may also help detect embezzlement or asset diversion schemes.

Legal Options for Addressing Partner Misconduct

If your business partner is stealing from the company, you have several legal options:

  1. Demand Letter: A formal request for repayment or explanation can open a dialogue without immediate litigation.
  2. Mediation or Arbitration: If your partnership agreement includes dispute resolution clauses, alternative dispute resolution may be required before court.
  3. Civil Lawsuit: You may file a civil claim for breach of fiduciary duty, fraud, conversion, or embezzlement. Remedies can include damages, restitution, and equitable relief.
  4. Criminal Complaint: Theft or embezzlement may also warrant criminal charges, which could result in jail time and court-ordered restitution.
  5. Injunction: Courts can issue a temporary restraining order to prevent the partner from accessing or depleting business funds further.

Role of the Partnership Agreement

Your partnership agreement is a critical reference point when disputes arise. It may:

  • Define what constitutes permissible use of business funds.
  • Set procedures for resolving financial disputes or dissolving the partnership.
  • Establish ownership percentages, withdrawal rights, and decision-making authority.

If a partner violated terms of the agreement, they may be held liable for breach of contract in addition to other legal claims.

How to Prevent Future Theft by a Business Partner

To protect your company from future unauthorized withdrawals, implement the following safeguards:

  • Establish dual authorization: Require two signatures for major financial transactions.
  • Use accounting software: Tools like QuickBooks or Xero can provide transparency and alert you to irregularities.
  • Restrict account access: Limit who can access business bank accounts or issue payments.
  • Regular audits: Perform internal audits or hire an external auditor to review books regularly.
  • Define roles and responsibilities: Clearly outline who handles financial matters in your partnership agreement or operating agreement.

These steps can build accountability and trust while reducing the risk of financial misconduct.

When to Involve Law Enforcement

If the amount of money taken is significant or if the partner is uncooperative, you may need to involve the authorities. Situations where law enforcement is typically called include:

  • Clear evidence of embezzlement or check forgery
  • Use of company funds for illegal activities
  • Refusal to return company property or funds after partnership dissolution

Filing a police report creates a formal record of the incident and may prompt an investigation that supports your civil case.

Frequently Asked Questions

  1. Can I sue my business partner for taking money without permission?
    Yes. You may have grounds for a civil lawsuit based on breach of fiduciary duty, embezzlement, fraud, or breach of contract.
  2. What evidence do I need to prove my partner is stealing from the business?
    Bank records, transaction logs, surveillance footage, and communication records are helpful. A forensic accountant can also aid in gathering evidence.
  3. Should I confront my partner directly?
    It’s better to gather evidence and consult a lawyer before confronting your partner to avoid jeopardizing your case or escalating conflict.
  4. Can criminal charges be filed against my partner?
    Yes. If theft or embezzlement is proven, your partner may face criminal charges, which can lead to fines, restitution, or imprisonment.
  5. How do I prevent this from happening again?
    Use written agreements, accounting software, and internal controls like dual signatories, audits, and limited access to funds to reduce risk.

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