Signs Business Partner Is Stealing Money from Company

One of many signs a business partner is stealing money is to look at the net profit from the Profit and Loss statement (“P&L”) and compare it with the balance in the business bank account. If the amount in the P&L and the bank statement does not match up, it is a strong sign that a business partner is stealing money.

Business assets, including money and credit, cannot be used by either partner. Of course, partners agree on the salaries and distributions they receive; usually, the partnership agreement includes these designations. However, partners should not withdraw unauthorized funds from the business.

However, sometimes business partners steal from their companies. In doing so, these dishonest or immoral partners violate their partnership agreements and their fiduciary obligations to the other partners.

When a company partner discovers that someone is stealing from the business, they must be proactive in contacting an experienced law firm and the authorities. Some acts of company theft are criminal and can prompt a civil litigation trial.

The goal for business partners who discover theft has occurred is not only to recover the stolen funds. In addition, we will identify how the partner was able to steal from the business, preventing them from ever doing so again. Therefore, all partners must ensure that the company will recover and return to form.

Business partners who learn that theft is occurring should contact a California business lawyer immediately. A skilled attorney will gather all the information, analyze the facts, and take the appropriate legal action on behalf of the client.

However, it is not always easy to determine if a partner is stealing. This article will detail how partners can identify theft and what happens after a partner steals from the company.

All business partners must know how to identify company theft and what actions to take when it occurs. In addition, business partners must protect their companies—and themselves—from individuals who take advantage of them.

Example: How Do I Know if my Business Partner is Stealing Money?

Melissa and Holly are business partners in Sunnyvale, California. The two entrepreneurs have been running a successful music shop for over a decade, and everyone in Sunnyvale knows that when you need a new instrument, some sheet music, or a lesson, you head over to HM Hits Music.

Holly and Melissa also actively invest in the stock market, but recently Holly has lost some money through some unlucky choices. A few weeks later, Melissa notices that the store’s sales have taken a significant dip. Melissa maintains detailed accounting records, which is why she quickly realizes that something is amiss.

Melissa asks Holly if Holly has noticed that suddenly, the business is not selling as much music gear as it normally does. Holly downplays the sudden change, but Melissa is determined to get to the bottom. A few days later, Melissa notices that Holly has stopped complaining about her stock market losses and is wearing an all-new wardrobe.

Melissa is suspicious about her partner, so she pays even more attention to the money coming in and out of business. She documents all sales, takes a new count of all inventory and organizes the receipts from the last month.

Melissa soon realizes that, for the first time, the company’s sales and expenses simply do not add up. Based on the shop’s inventory, HM Hits has made more sales over the last month than they have receipts for. Melissa suspects that Holly is dishonest and not reporting some of the store’s transactions so she can pocket the money. While Melissa is upset by this news, she knows she must get to the bottom of the theft issue, or she might lose the company she worked diligently to build.

Ultimately, Melissa confronts Holly, who does not confess. Melissa then hires a forensic accountant to prove that the theft occurred and that Holly admits that she stole from the business. Although Holly explains that her financial losses forced her to find a way to pay her bills, Melissa decides she cannot trust Holly anymore. Melissa’s lawyer helps her collect the appropriate damages, but Melissa does not press charges against Holly. Ultimately, the two women choose to dissolve the partnership and go their separate ways.

What Happens When a Business Partner Steals?

When business partners steal from their companies, they create a chain reaction that occurs quickly and can damage relationships and finances and even bring down the entire company.

Typically, when one partner takes something from the company in an unauthorized fashion, they do so out of greed or malice. However, there is no one cause for company theft. Sometimes the employee or partner has fallen upon hard times, but those who steal are already successful and wealthy and seek to take advantage of the system.

We often think of theft at the workplace as something that a disgruntled employee might do, but the truth is that many business partners feel entitled enough to take money that does not belong to them. Once someone at the company notices that theft has occurred, they must act quickly to prevent the cycle from continuing. Unfortunately, when corporate thieves think that their actions have no consequences, they often continue to steal. So what should business partners do when they discover theft at their company?

Maintain Detailed Financial Records

All businesses should keep up-to-date records of financial transactions, whether theft has occurred or not. However, one of the best ways to deal with and prevent theft is by keeping accurate track of every transaction the business makes.

All business partners should work to keep records of the company’s finances, and each partner should be committed to this habit. If everyone understands the importance of monitoring and recording company finances, it will be easy for partners to spot inconsistencies.

The business partners should be personally responsible for recording transactions, but there should also be an accounting system that is easy to use. In some companies, one trusted partner is in charge of the books; in others, the partners hire an accountant. However the business decides to do it, they should ensure that:

Every sale or service provided is recorded
Each expense or distribution is recorded

When partners monitor the company’s funds, it is easier for them to notice irregularity and trace the unusual cause of the activity.

Here are other clues to watch out for that could reveal that a partner is stealing from the business.

Drastic changes in the partner’s income

When one business partner suddenly appears to have more disposable income, this can signify that their new income has come from illegal means. Sometimes, business partners who steal flash their money in plain sight because it provides them a thrill, or they just cannot help themselves. Other partners, however, sometimes hide their new wealth so as not to be discovered. In any case, pay attention to the spending habits of business partners. For example, if one partner suspects the other of stealing and the suspect suddenly buys a new house or car, it may be time to intervene.

Dramatic changes in company income

Similar to partners’ income, company income can be very revealing regarding theft. If stealing occurs, check in with the company’s accountant or go straight to the books yourself.

When company sales dramatically increase or decrease, these signs often point to the fact that a partner is not reporting all sales or is putting company funds into their pocket. If the partners are careful about their financial records, it will be easier to identify sudden changes and diagnose what they mean.

Increased partner distributions

Sometimes, business partners take more distributions from the company than they should. This action may appear to be a simple miscalculation, but it is a sneaky way of stealing from the company.

For example, Judd and Abram are equal partners in their dry cleaning business, Press On. The partners do brisk business, and profits have steadily climbed over the last few years.

Based on their partnership agreement, Abram and Judd should take equal distributions from the company each quarter. However, Abram sees nothing wrong with slowly increasing his distributions as the months go by. After all, business is booming, profits are high, and Abram is a company partner, right?

When Judd discovers that Abram’s distributions are higher than his, he immediately calls an attorney. Abram is stealing from the company, and Judd needs to confront his partner and deal with the situation quickly.

Since Judd does the books, he has evidence of Abram’s high distributions. He also has a copy of the partnership agreement the two men signed, which specifically authorizes both partners to take an equal percentage of distributions. As a result, Judd can collect the damages owed to their dry cleaning business, and ultimately he forces Abram out of the company and takes it over himself.

Excessive spending

Sometimes, business partners indirectly steal from the company. Instead of taking money from an account, for example, or changing their level of distributions, they begin charging numerous expenses to the company. These charges may be personal, such as clothing, extravagant dinners, cars, and even houses.

When partners observe this behavior, they should ask their partner about it. It is one thing to charge a client lunch on the corporate card, but it is quite another to continually charge personal expenses. Using company credit cards in this manner is not just irresponsible; it is stealing.

What Should Business Partners Do When Theft Occurs?

To deal with company theft quickly and thoroughly, individuals worried about company theft should contact experts in the field.

Many entrepreneurs and partners decide to contact a forensic accountant. Forensic accountants are certified as public accountants but can also scrutinize financial documents, accounts, and records for evidence of wrongdoing. For example, when a forensic accountant finds evidence of theft in the company’s books, this evidence can be used in a court of law.

When stealing occurs at any level, it also makes sense to get in touch with a professional attorney with proven experience with such matters. A skilled business lawyer will be with you every step as they help build your case and seek out the damages owed.

Stealing is not an accusation that should be made lightly or not taken seriously. If one partner accuses the other of stealing, chances are that whatever relationship they had will suffer. Dealing with a thief can be emotionally draining, and the situation can hinder productivity and make normal basic tasks difficult.

Also, if the accusation of stealing is proven wrong, the future of the business could suffer. Therefore, before accusing a business partner of committing theft, ensure that the information is credible and that proof exists.

Contact An Embezzlement Attorney When Your Business Partner is Stealing Money from the Company

When a business partner charges personal expenses on the company card or outright takes money from the company account, the other partners must address these wrongful actions immediately.

At Nakase Wade, our California business lawyers and corporate attorneys focus on identifying and handling the problem at your company, so you can get back on the right track.

We will guide the business partners through the investigation and provide them with choices regarding how to proceed.

Our goal is to ensure that your interests are protected. However, we also know how important it is that the assets you have worked so hard for remain yours.

When a business partner violates their fiduciary duty to the company, they can damage relationships, erode trust, and sometimes even bring down the entire business. Contacting a licensed attorney early in the process allows the company, and its partners, to recover and move forward.

If your business partner is stealing, contact Nakase Wade today for a free consultation.

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