Basic Training: Is My Conniving Co-Owner Embezzling?

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq., owner of Ask The Business Lawyer, is an award-winning business attorney, speaker, and Entrepreneur Magazine online contributor. She saves consulting and professional services companies time, money, and aggravation by serving as their outsourced legal counsel.

Posted on December 1, 2016 in Business Partners

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Q: I have a business partner (“John”). He is majority shareholder with a 55/45 split. We act primarily as a subcontractor for a small number of other companies. We do not have an operating agreement. We typically travel and complete projects together. Due to a scheduling conflict, I cannot go on our next project. Knowing this, he has contacted a friend to go with him (my partner does not currently have a valid driver’s license) without my knowledge. John has purchased airfare with his own money and I believe his intent is to have the final payment made to him. In the past, we have not always been able to complete projects together but have still had our 55/45 split. Is he essentially stealing (embezzling) from me?

A: From what little you’ve shared, there isn’t enough evidence to prove that your partner is embezzling from you. The fact that he contacted a friend to join him on the business trip could have a very innocent explanation–such as (as you noted) that he needs someone to handle the driving because you can’t be there. There could also be a personal explanation–such as, the friend is having marital difficulties and getting out of town with your partner is a welcome diversion. As your partner is a 55 percent shareholder, in theory, he has the right to ask a non-owner to accompany him on the project without your prior consent, as long as you are not required to pay for the non-owner’s travel expenses, and that the confidentiality of your client’s information remains intact.

Your belief that your partner is embezzling from you–on its own–is not enough to prove that’s what’s really going on. As they say, “the proof is in the pudding.” Know what the project should have generated for your company (in other words, review your contract with that client). Keep close tabs on the financial records so you’ll know when payment is made. More important, if you are starting to harbor suspicions about the integrity of your partner, this would be a good time to invite in a third-party facilitator to help get your communication with your partner back on track. Or, if it’s time that you and your partner parted company, to work out your mutual exit in an amicable manner.

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