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How executives can effectively handle a partner’s embezzlement

On Behalf of | Nov 30, 2023 | Business Law

Starting a business alone is a massive undertaking. Most people feel relieved if they can find a partner capable of assuming some of the responsibility that comes with starting a new business entity. Business partners share the risks and the rewards of their entrepreneurial endeavors.

Unfortunately, taking on a partner also means accepting the possibility that they could fail in their obligations to the business. Not only do people have to worry about laziness and incompetence affecting their business, but they also need to actively watch for theft, including embezzlement.

What should a business owner do when they believe that their partner has begun embezzling from the company?

Obtain financial evidence

Business partners have access to most, if not all, internal company records. Someone embezzling could very easily delete or falsify key company documents. It will therefore be very important to validate the accuracy of the current company records and to obtain copies of any records that show financial misconduct. Discrepancies between the actual financial status of the company and the current books can help prove financial misconduct on the part of one partner. So can records of wire transfers or invoices sent to clients that do not align with the funds received when the client paid. Checking account records and internal financial documents can help prove what has happened.

Create additional oversight

Once there is documentation supporting someone’s concerns of embezzlement, they may then want to begin planning new ways to limit future embezzlement. Instituting new financial protocols for the company can be one way to diminish the likelihood of ongoing embezzlement while the partner still has access to business resources. It will also deter similar misconduct from others in the future.

Negotiate a partner’s exit

Ideally, someone preparing to confront a business partner about suspected embezzlement will already have proof of what has transpired that they can leverage during their negotiations. Letting an executive go without prosecuting them is perhaps the most generous arrangement possible when a business partner has violated their fiduciary duty to the organization for personal financial gain.

It is important for those confronting a partner to do so in a confidential and safe environment and to maintain documentation of the conversation that they have with their partner. If the partner who embezzled is uncooperative, then it may be necessary to take additional steps, potentially including filing a lawsuit to recoup what they have embezzled or even contacting law enforcement officers.