In today's Freedom Friday blog and email newsletter, I want to talk about a topic that actually comes up a lot with many of my clients. The issue usually is framed this way – “I got into business with so-and-so, and its not working out; my business partner is doing all sorts of things that are bad, and I need help…” Yep, today we're talking about how to handle “bad” business partners. This usually means my client wants out of the business or wants to stay in the business and remove the offending business partner. Either way, it's a business break-up case, and that's today's topic, “Help! My business partner is stealing money from my small business!” In today's Freedom Friday blog I'm talking about how to deal with a “bad” business partner, and providing solutions, especially if you want to stay in the business.
First of all, what should you do if you discover you have a “bad” business partner? Maybe you want to stay in the business and take it over, or maybe you want out, but where should you start? The first thing you need to do is remain objective and level-headed. You don't want emotions to control your decisions. This is not an easy situation (in fact, it's going to get worse), and so you need to remain calm to get through this situation and see it to the end.
Next, you need to make sure your business partner is actually stealing from the business or committing some kind of “fraud” against you and/or the business. You can't just go on your “gut feeling”. This means you need to gather evidence such as bank statements, accounting records, credit card statements, receipts, etc. If you can't obtain the books of the business (this is common with a “bad” business partner), it may be necessary to file a lawsuit against the other partner and the business to require what is called an “accounting” in addition to other causes of action. On the other hand, and you have access to the financial records, you need to place tight controls on the business cash and assets. Always require expenses to be matched with a receipt. Remove unnecessary signers from accounts and limit access. Consider installing video cameras if your small business has physical premises, and make sure you keep all records.
At this point, you need to think about your legal options, as well. Do you want to leave the business? Or do you want to keep the business and force the bad business partner out? Either way, you need to consult an attorney. You will likely have several options, including filing a lawsuit for breach of contract, breach of fiduciary duty, and/or fraud (and other claims like “unjust enrichment”). The lawsuit might also include a request for an injunction, also called a “temporary restraining order” (or TRO) and may also request judicial dissolution of the company (very common if you want to leave the business, as well). You need a business litigation attorney to help interpret your company's operating agreement or bylaws, state statutes, possibly federal statutes, to develop a game plan for how to handle this situation legally and get the best outcome you can.
Thinking about starting a small business? Or maybe your business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth? Please contact me at [email protected] to schedule a FREE strategy session.
For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/