When two or more people agree to share their property, money, efforts, skill and/or knowledge to conduct business for profit, a partnership is formed. Typically, successful partnerships are built on trust, a shared vision, and complementary skills. Unfortunately, business relationships sometimes do not go as expected, and partnership fraud occurs. If you suspect that one of your partners has been engaging in fraud, it’s imperative that you contact an attorney as soon as possible. An experienced lawyer can protect your rights and minimize the negative effects of any fraud that was perpetrated.
Partnership Fraud Basics
Partnership fraud occurs when a partner knowingly engages in deception to obtain some sort of personal or financial gain to the detriment of the partnership. For example, a business partner withholding money that belongs to the partnership by means of deception for his or her own personal gain would be a form of partnership fraud. Similarly, partnership fraud may exist where a partner used partnership assets to start a competing business without the knowledge and consent of the other partner.
Partners Have a Fiduciary Duty to the Partnership
In a general partnership, all partners have a fiduciary duty to the partnership. A fiduciary duty is the highest duty that can be imposed by law and requires partners to place the interests of the partnership above their own personal or other business interests. There are various fiduciary duties, including:
- A fiduciary duty of disclosure
- A fiduciary duty of loyalty
- A fiduciary duty of care
In almost any conceivable case, a fraudulent act such as stealing money from your own company would be a breach of a partner’s fiduciary duty, making the breaching partner subject to legal action initiated by the other partners.
What do You Do When Your Business Partner Steals from You?
If you suspect that a business partner is stealing from your business, you should take immediate steps to protect yourself and your company. The first thing you should do is gather any evidence you have that indicates fraud. If the evidence is digital, take screenshots, create digital or print copies, and take any other steps that will preserve evidence in the event that your partner tries to destroy the evidence later.
If you suspect fraud, it’s important to act quickly. Waiting could have significant repercussions for you and your business. That said, you should be sure that your partner actually engaged in fraud before taking legal action. You will need evidence to support your claims, and wrongfully accusing your partner of fraud could irreparably harm your business relationship. Fortunately, an experienced attorney can help you determine whether there is sufficient evidence of fraud to pursue legal action. Some common examples of partnership fraud include:
- Payroll fraud
- False expenses
- Misappropriation of partnership inventory
- Fraudulent invoices or receipts
- False bookkeeping entries
In the event your business partner committed fraud against the partnership, you may be able to recover compensation for the losses caused by his or her conduct. It can be difficult to sue someone you went into business with, but it may be the only way to protect your rights and obtain the partnership funds that you are owed. Taking legal action against a partner is a big step, so it’s highly advisable to explore all of your options with a Biloxi business lawyer before filing anything with the court.
An Attorney Can Help You Obtain Evidence of Fraud
In some cases, a person may feel fairly confident that a business partner is engaging in fraud but may be unable to obtain tangible evidence to support his or her hunch. If you have found yourself in this situation, it’s better to retain an attorney than it is to snoop through your partner’s phone or laptop when he or she is not looking.
If there is sufficient evidence of fraud to bring a claim, a lawyer can use a legal process known as discovery to compel the production of evidence. Examples of the kinds of evidence an attorney can obtain through discovery include:
- Phone records
- Bank records
- Hard drives
- Text messages
- Accounting records
Furthermore, if you refer the matter to a law enforcement agency, they may also collect evidence that could bolster your fraud claim against your partner. In most cases, it is a wise course of action to seek evidence through the legal process rather than surreptitiously. That said, if evidence of fraud is in plain view, do not hesitate to do what you can to obtain or make a record of it.
How to Deal with a Partner that Claims Embezzlement in Your Partnership?
Partnership issues can go both ways, and perhaps you are on the receiving end of accusations of partnership embezzlement or fraud. The way you should respond will depend largely on the specifics of your situation, but the first thing you should do is take the allegations against you seriously. Partnership fraud can lead to significant civil and criminal liability, so you should discuss the matter with a lawyer as soon as you can.
In some cases, accusations of partnership fraud may be due to a simple misunderstanding or an accounting error. If you find yourself in this situation, you may be able to resolve the situation informally by explaining your position and implementing a plan to resolve the discrepancy, if one exists. In the event that your partner continues to believe that you engaged in fraud even after you have explained the situation, you should end the discussion and contact an attorney immediately. In addition, be sure to hold on to any records you have regarding financial transactions you engaged in with respect to partnership funds.
Call Us Today to Speak with a Biloxi Business Lawyer
If you suspect that your business partner is engaging in fraud or you have been accused of partnership fraud, it’s in your best interest to contact a lawyer right away. Van Cleave Law is an experienced business litigation practice and we know how to resolve disputes as quickly and efficiently as possible. To schedule a free case evaluation with an experienced business litigation attorney, call our office today at (228) 432-7826 or submit an online request here