What To Do If Your Business Partner Steals from the BusinessTeam
Every business relationship is built on trust. This trust requires business partners to be honest and loyal to each other and the partnership. They must act in good faith and in the partnership’s best interests.
Sometimes a business partner’s actions make it impossible for others to trust them, jeopardizing the continued existence of the partnership. Usually, this trust evaporates when a partner steals from the partnership’s business.
What is considered stealing from the partnership’s enterprise? How can you address your business partner stealing from the partnership? What legal actions can you take against them? How can a commercial litigation lawyer help?
This article will answer all these questions and explain how to hold your business partner accountable.
What is Considered Theft from a Partnership?
Depending on the terms of the partnership, a partner usually has some authority to manage, administer, control, and operate the business and affairs of the partnership. This authority allows them to access and control the partnership’s assets and funds. Usually, the partner who steals from the partnership misuses their power over the partnership’s money and property to do so.
Common examples of theft by a business partner include:
- Physical theft by taking partnership property like office supplies, inventory, and other items for private and non-business related use;
- Theft of confidential information and trade secrets, like stealing the partnership’s client lists or information that gives the business its edge over competition, like a secret recipe; and
- Theft and embezzlement of funds, like a partner sending payment to non-existing vendors and inflating operational expenses for their own personal benefit to the partnership’s detriment.
What is considered stealing by a partner is not always clear cut and will depend on the context. Some partners might try to conceal theft in creative ways to evade legal consequences when reviewing the complete picture would reveal their wrongdoing.
What To Do When You Learn a Partner is Stealing from the Business
When a business partner steals from the business, other partners should take action to minimize their losses. Some important steps to take are:
Determine the Extent of Theft
Retain an independent auditor or a financial professional to inspect the partnership’s financial records. Such experts can help determine the extent of the partner’s theft. The partnership’s employees can also be questioned to confirm if they have knowledge about any suspicious activity.
- Maintain Documentary Record
It is best to collect and store all the documentary evidence, including banking information, in a safe place. The other partners should try to prepare a list of missing items and determine their value.
The partner who stole from the business might have access to the partnership’s business email accounts and could use them to track other partners’ email activity. For this reason, it is advisable to use private email to communicate with other partners during any such investigation.
- Consult and Retain a Commercial Litigation Lawyer
Some businesses have a legal department headed by the chief legal officer (CLO). A CLO advises the partners and senior management on various legal issues such as new laws that affect the industry, litigation involving the partnership, employment and labor disputes, compliance with the law, and much more.
However, when a partner is stealing from the business, the in-house legal counsel and chief legal officer can’t always help. There could be an issue of a conflict of interest for the partnership’s legal team in representing any one side of a dispute between partners.
The solution is usually to hire a lawyer outside the partnership’s legal counsel for the partners to take legal action against the one who stole from the partnership. For this reason, hiring a commercial litigation lawyer can be helpful in such a dispute.
A commercial litigation lawyer can provide a wide range of legal services such as:
- Reviewing the partnership agreement to determine the rights and obligations of the partners;
- Advising the business partners on their legal options against the one who stole from the partnership;
- Gathering evidence of the alleged theft from the business;
- Sending the partner who stole from the business a demand letter asking them to return the stolen items and/or pay their value;
- Negotiating with the partner who stole from the business; and
- Filing a lawsuit against the partner who stole from the partnership.
What Remedies Are Available for the Business Partner’s Theft
Taking partnership money for one stated reason and using it for something else or keeping it without the partnership’s permission may constitute fraud. If a partner steals money from the business, other partners have the option to notify the authorities to investigate the thieving partner for criminal fraud and embezzlement.
However, to make the partner return the stolen assets or pay for the value of stolen items, the remaining partners need to start a civil lawsuit for breach of the partnership agreement and breach of fiduciary duty. A criminal proceeding’s findings can help with a lawsuit for civil remedies against the thieving partner.
Under their fiduciary duties, business partners must deal honestly with one another and act in the best interests of the partnership. This prohibits them from engaging in certain self-serving behavior, like using the partnership’s funds for themselves or stealing from the partnership in their own interest.
In a claim for breach of a partnership agreement and breach of fiduciary duty, partners can seek various remedies, including:
- Monetary and non-monetary damages;
- Accounting and paying of any profits back to the partnership;
- Dissolution of the partnership;
- Ejection of the thieving partner from the partnership; and
- Orders to perform or avoid certain acts are called injunctions.
If you’re planning to sue your partner for stealing from the partnership’s business, a commercial litigation lawyer can help. They can guide you through the legal process, help prepare a legal strategy based on your circumstances and advocate in court on your behalf.
The commercial litigation process is quite formal and riddled with technicalities. The steps involved in a typical lawsuit are:
- Exchange of pleadings;
- Discovery process;
- Mandatory mediation;
- Pre-trial conference; and
Experienced commercial litigation lawyers can apply their unique negotiation and advocacy skills to help you seek justice against a thieving partner. They have the necessary expertise and knowledge to protect the partnership business’ interests at every stage of commercial litigation and maximize your chances of winning your lawsuit.
When a partner is stealing from the partnership’s business, the other partners must act quickly to protect the partnership’s interests. They should determine the extent of theft and gather documentary evidence before seeking legal advice on the best next steps.
A commercial litigation lawyer can help negotiate with the thieving partner by sending a demand letter. In the demand letter, they can ask the partner to return the stolen items or pay their value. If the demand letter does not work, the other partners may have no choice but to sue the partner for stealing from the business.
During commercial litigation, a lawyer can help the partners suing the thieving partner make strategic decisions at every stage of the lawsuit and maximize their chances of recovering their losses.
If your business partner is stealing money from the partnership and you want to know more about your rights and legal options, our team of commercial litigation lawyers would be happy to help you. Contact us at +1 (800) 771-7882 or email [email protected], and we would be happy to assist.