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How to Handle Your Business Partner Taking Money from Your Business

Posted by Jonathan Krems | May 24, 2024 | 0 Comments

In today's Freedom Friday blog and email newsletter, I want to talk about a topic I get asked about, surprisingly more often than not, and that's how to handle a rogue business partner.  I get a lot of inquiries about how to handle LLC members who are causing trouble or other issues, sometimes its an issue of mismanaging funds, sometimes its other issues.  This can get especially tricky if there are only two owners in the LLC, and the bad guy is running the business into the ground to the detriment of the co-owner who is the victim of such misconduct.  This is the number one reason why these LLCs go through a “business divorce” or other partnership disputes.  In today's Freedom Friday blog and email newsletter, I want to in a practical way answer the question, “How to handle your business partner taking money from your business.”

First of all, if you suspect your business partner is stealing money from the business, or otherwise mismanaging the business to your detriment, you need to get past the emotional issues that are involved.  You're going to have to decide eventually if you want to continue in the business, allow the business to continue, or take other action to preserve the business.  Some common goals at this stage are possibly departing the business, and letting the bad partner have it; or, if you can, saving the business and kicking the bad partner who is causing the trouble out.  Either way, you're likely heading towards a “business divorce,” and that's not fun for anyone.  The next thing you need to do is contact a business attorney experienced in these issues to get some solid legal advice about your options.  If your business is structured as an LLC, your business attorney will want to review your LLC operating agreement to help you explore your options, especially if you want to leave the LLC yourself, or if you want to keep the LLC going without the business partner.

Most of these situations at this stage go in one of two ways.  Either the business partners are going to separate somewhat amicably, and go their separate ways, or there is going to be a litigation fight in court, which may result in dissolution of the LLC and termination of the business.  Sometimes that is necessary, and sometimes its not.  It all depends on what the parties want and what their attitudes are towards negotiation.  If litigation is the direction, there are several different kinds of “theft” which might be involved: theft of physical property, theft of intellectual property (like trade secrets), fraud, embezzlement or other conversion, and breach of fiduciary duty, are just some examples of “theft” you might have experienced.  In any case, there are three steps you MUST take to protect your interests if you have experienced any kind of business theft:

1.  Gather Documents

The first step you MUST take to protect your interests if you experience any kind of business theft is to gather documents.  You need to collect whatever documents or other evidence to prove that the money or assets were stolen and that they were stolen by your business partner.  This should include receipts, account statements, and/or anything else you can think of to show the flow of money or chain of custody of equipment.  If you have cameras in your business, you can also pull the footage.

2.  Decide Your Legal Strategy

The second step you MUST take to protect your interests if you experience any kind of business theft is to decide your legal strategy.  You must consult with an experienced business attorney to figure out the kind of theft involved, and what the best strategy would be for your situation, such as negotiating to an amicable separation, litigation, and/or criminal prosecution.

3.  Terminate the Relationship

The third step you MUST take to protect your interests if you experience any kind of business theft is that you must terminate the relationship, i.e., you must end the business relationship with the co-owner who has caused the issues.  Depending on your business structure, this can result in dissolving an actual partnership, dissolving an LLC, removing the member LLC, etc.  Your experienced business attorney will be able to guide you through this process and assist you in terminating the relationship which has caused you and your business so much harm.

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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