My Business Partner is Misappropriating Funds: Please Help!

Not every business relationship goes exactly as planned. If you suspect your partner is
misappropriating funds, you need to take steps to protect your rights—and possibly save the
business. Contact a Wilmington business litigation attorney today.

Why Business Partners Misappropriate Funds
The reasons vary. Some partners run into financial trouble and use business funds to keep
themselves afloat due to gambling addiction, chemical dependence, or financial mismanagement.
Some partners always intended to steal from the business and are career con artists. Whatever the
reasons, misappropriating funds is wrong and threatens the livelihood of your company.

Signs of Misappropriated Funds
Unless you routinely go over the books, it might not always be apparent that money is missing.
However, there are signs you should be on the lookout for that a partner is at risk for stealing
from your company:
● The partner is suddenly under tremendous stress that is not work related. This partner
might receive a lot of phone calls at work and act is a suspicious manner.
● The partner wants to select a new accountant for the company and has someone in mind.
The new accountant might be in on the fraud. The partner begins accusing another business associate out of the blue of stealing from
the company. This could be an attempt to throw the scent off him or herself.
● The partner demands total control of all business functions with no or little oversight. The
partner could also try to handpick the board of directors, who technically oversee
management.
● The company suddenly changes its financial metrics. This change could be an attempt to
conceal embezzlement.

If you suspect that someone is embezzling funds, then you will need to take a close look at the
company’s finances. Of course, if money is missing, then speak with an attorney as soon as
possible. Any delay could hurt the company.

Bringing an Individual Lawsuit
As a partner in the business, you can usually bring suit against the partner who is
misappropriating funds. In these types of cases, your lawyer can bring different claims, such as:
● Breach of contract. If you have a shareholders agreement or an operating agreement, then
your partner is probably in violation of it.
● Breach of fiduciary duty. As an officer of the business, your partner owes duties imposed
by law, such as the duty to act in good faith and a duty of loyalty to the company.
● Fraud or deceptive trade practices. We can often fold in these types of claims.
In an individual lawsuit, you can recover not only the funds lost but possibly treble damages
above and beyond the loss.

Suing on Behalf of the Corporation
It is sometimes better for the corporation to be the plaintiff. For example, you might have already
left the company when you discover malfeasance. Since you cannot sue in your individual
capacity, bringing a suit on behalf of the corporation is preferable.
This type of suit is helpful when the partner misappropriating funds is still in charge of the
business. A will finally force the company to act to protect itself from the manager or partner
who is threatening it.
Contact Hodges, Coxe & Potter
Because this is a complicated type of action, you should consult with an experienced business
litigation attorney to determine your best path forward. We have represented business partners
for decades and can help you claw back misappropriated funds.