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How Should My Small Business Handle a Co-Owner Stealing Money from the Business?

Posted by Jonathan Krems | May 25, 2023 | 0 Comments

In today's Freedom Friday blog and email newsletter, I want to talk about an important topic that does not come up often enough.  In fact, with the many cases I am aware of around the State of Oklahoma, this is something that is probably not discussed enough.  But I do have clients who have these issues --- either they are falsely accused of this, or their business is a legitimate victim, and that's how should their “small business” handle a co-owner stealing money from the business.  Now, I don't necessarily mean literal theft or conversion of funds, although that can be involved.  But civil theft can come in a variety of different ways, including physical theft of funds, theft of intellectual property (there is a technical term for this in Oklahoma), fraud, embezzlement, and lastly, breach of fiduciary duty.  In today's Freedom Friday blog and email newsletter, I'm talking about how your small business should handle a co-owner stealing money from the business --- in as many ways as you can think of.

First of all, there are several different types of relationships which can cause someone or even a business entity to steal money from your small business.  These relationships can be person-to-person in a general partnership, business-to-business, or person-to-business, and you can even have a “joint venture” without a formal business entity being established by a partnership agreement, bylaws, or an LLC operating agreement.  All of these can give rise to a relationship where your small business can be taken advantage of, and you can have an issue of theft from your business.

Next, let's talk about the different kinds of theft you can experience with your business.  The first kind of theft would be physical theft.  Oklahoma law only recognizes the tort of conversion for physical personal property.  However, Oklahoma law does not recognize conversion of intellectual, or intangible, property; for such a claim you would need to sue for misappropriation of business assets or intangible property belonging to your business.  The second kind of theft is fraud.  In order to prove fraud, you have to prove your co-owner made an intentional false representation to the business or you, that you reasonably relied on that statement (this is called detrimental reliance), and you suffered harm or damages from relying on the false statement.  The third type of theft is embezzlement, which is a criminal version of conversion as explained above.  Lastly, there is breach of fiduciary duty, which occurs when you and the co-owner had entered into a fiduciary relationship, and the co-owner breached their fiduciary duty to either you or the business.

So, what should you do if you suspect theft from your small business?  First, you must contact a business litigation attorney, such as myself, to guide you through the process. Not only are there civil remedies available, but you need an attorney who can protect your interests if you decide to report the theft to law enforcement and help criminally prosecute the misconduct.  The first step is to gather evidence.  You must gather evidence in order to prove the theft and rule out mistakes, accounting errors, or missed entries in the corporate books.  Also, if there is a pattern of theft, you need to be able to identify that pattern so that your attorney can articulate the issue in court.  You need to impose controls on all your business accounts to prevent this from happening again and require detailed receipts for expenses.  In addition, you need to carefully watch for any withdrawals, especially through ATMs or cash registers.  You and your attorney also need to decide the type of theft (e.g., conversion, fraud, etc.), and decide if you will file criminal charges and/or prosecute the offending co-owner in civil court.  Lastly, you need to dissolve the partnership or whatever relationship you had with the offending co-owner.  If the co-owner was in a partnership with you, the offending co-owner needs to be removed from the partnership (or the LLC or joint venture or corporation), or whatever business relationship existed.  If there was more than one co-owner of the business, the remaining co-owners will need to re-group in order for the business to continue.  You also need to work with your attorney to recover the stolen money or property through the civil courts and/or through criminal prosecution.

Thinking about starting a small business?  Or maybe your small 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.

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About the Author

Jonathan Krems

Jonathan is the Founder and Managing Attorney of Liberty Legal Solutions, LLC, a law firm dedicated to building, protecting, and defending the business and personal interests of our clients in Oklahoma.  Jonathan's primary practice areas are business law, contracts and agreements, business liti...


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