What to Do if My Business Partner is Misappropriating Funds?

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In life, we want to believe in the best of people. This is especially true when you go into business with someone. If you go into business with a partner, you want to believe that they are as upstanding as you when it comes to business. It makes the realization that they are misappropriating funds especially devastating. However, this can destroy a successful business pretty quickly. You will need to deal with this situation just as swiftly.

When you find yourself in this difficult decision, there are two paths you can take to solve the problem. The first is to bring about an individual lawsuit against your business partner to seek monetary damages for the misappropriated funds. The second is if you have a larger business where you can force the corporation to bring against the same lawsuit on your business partner. While these may sound like the same options, choosing one or the other could actually impact the ultimate outcome of your case.

Individual lawsuit

This is the most common and typically the most straightforward route to take. Instead of filing the lawsuit under your businesses name, you would bring it about in your own name against your partner for any financial losses that have been inflicted on you personally.

Most often, this includes a breach of contract, but only if you have either an operating or a shareholder’s agreement in place. It can also include a breach in fiduciary duty since as an officer of the company, your partner would have been expected to act in good faith and the best interests of your company. More often than not, this lawsuit will also have claims of fraud and deceptive trade practices. Due to all the very serious claims that can be included in a lawsuit, you can not only recover the misappropriated funds and attorney fees, but it can also almost triple the damages you can receive.

Corporate plaintiff

Alternatively, filing a lawsuit through your company is a little more complex. In most business operations, the board of directors is responsible for making sure that corporate directors and other directors do not take any actions that could harm the corporation. You typically won’t find this in small businesses because the aforementioned board is just a small handful of people. However, this type of legal action is the best course of action when the person who is misappropriating funds is actually in control of the company since it will force the company to take action.

This second option is also useful if you have left the company and found out the misappropriation was still going on while you were a shareholder of the company at the time. However, this suit may be dismissed if certain criteria was not met, such as:

  • you weren’t a shareholder at the time
  • you did not send a written notice to the corporation of the bad acts you seek to remedy
  • a panel of independent directors, not named in the suit, determine that it is not in the best interests of the company

No matter which route you decide to take against your business partner, having an attorney that is experienced in business law is crucial. As business law has so many different loopholes for companies both big and small, you need someone by your side to make sure your best interests as well as the best interests of your company are fairly represented so you can make sure justice is done. If you are a business in Ohio and want to pursue action against a business partner that is misappropriating funds from your business, contact us today.

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