1. Physical Theft/ Intellectual Property Theft
2. Fraud
3. Embezzlement
4. Breach of Fiduciary Duty

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.

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