The first thing to do when you suspect a business partner stealing money from business accounts is to make sure that the theft indeed took place, and that the partner and not anyone else was behind the theft. Nothing is worse for the business than partners accusing each other of things that are misunderstood or untrue. The suspicion of the theft could be due to lack of complete access to the account books, or some inadvertent omission or wrong entry in the account book. Again, if theft has indeed taken place, an employee rather than the partner might be behind it.
Accusing an innocent partner of stealing money creates unnecessary bad blood, spoiling a good working relationship and leading to the business management turning dysfunctional. Accusing someone of theft and failing to establish and document the allegation could also result in exposure to libel and defamation claims.
The best way to confirm the theft is through a detailed study of the account books including cash flow statement, bills, credit records, and stock details to identify any discrepancy.
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Discovery of the theft denotes the psychological end to the partnership contract, though the legal contract could last for many more days.
The way to confirm a business partner stealing money from business accounts is by establishing a trail that leads to the embezzlement and gathering evidence. Thefts, however, usually take place where there are no strong controls and reporting systems in the first place, making this process difficult. If no conclusive evidence of previous thefts exists, the only options are to:
- Set up an efficient monitoring and reporting mechanism that makes the theft apparent, and catch the embezzlement the next time.
- Capture the theft as it occurs, on camera or in person. This works only if the thief takes from the cash account.
Catching the partner committing the theft is one thing, but proving that what the partner committed was theft is another thing. A business partner has access to the accounts and cash of the business, and it becomes hard to establish that a theft takes place unless a motive for theft is established. The partner can always claim he took the money for some business-related purpose.
Ways to prove the embezzlement motive of the business partner are by:
- Documenting that the business partner siphoned off money to his personal account.
- Establishing that the partner did not report money in his possession or use the money for business purposes.
- Making sure that the partner cannot establish that he did anything for the business such as repay an outstanding debt, buy something for the company, or a similar circumstance.
Incorporation of rules and procedures for partners drawing money from the business account in the partnership agreement or contract makes establishing proof easy.
Having established a trail and gathered evidence, the next step is to prepare to confront the partner. Implication in theft does not nullify the partnership, and the busines partner stealing money from business accounts can still put a spoke on the business or, worse, even continue with the theft.
The safeguards depend on the extent to which the partner would react when confronted, and this in turn depends on the legal structure of the business, the extent of control the partner has on the business operations, nature of business operations, and state laws.
An LLC or a corporation with a good management team to control business operations might still function amidst the conflict among partners. A simple partnership, however, will most likely go down with the partners fighting. In a partnership structure, all partners remain liable for a loss. For instance, if one partner does not repay his share of debt, the other partner becomes liable for the same. Again, the company can face adverse consequences that arise from the criminal conduct of one of its partners. The partner can also sell his shares to a stranger, forcing you into an unplanned partnership.
A business where the partner owns the premises in his personal name or owns more than 50 percent of the business can easily cause problems for other partners. Even otherwise, the partner can refuse to cooperate and cause the business to become dysfunctional.
Taking safeguards usually requires the service of an attorney.
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The time for confrontation comes after having gathered the evidence and taken all possible safeguards. The two ways of confrontation include a face-to-face approach and filing a police case or lawsuit.
A face-to-face talk in the presence of an attorney or other witness with the objective of trying to end the partnership amicably is the best approach. Partnership agreements usually provide for clear avenues to extricate a partner from the company and ending business partnerships.
The alternative of filing a police complaint or lawsuit or charging the partner with embezzlement and/or failure to uphold business fiduciary duty might be required if the face-to-face confrontation breaks down. If the partner has a chance to destroy evidence after the face-to-face confrontation, it is best to avoid the direct face-to-face confrontation and seek legal remedy directly. This option, however, rarely leaves open the room for any reconciliation or clearing any misunderstanding and will eventually lead to ending the partnership. Those convicted of stealing from a public company are often required to pay restitution as a component of their sentences.
Ending a business partnership is similar to ending a marital relationship, with the hurt ego and pretended innocence of the business partner stealing from the business accounts making it much worse and difficult for the other party.