I recently found out that my business partner has been using our company credit card to the tune of over 6K in charges over the past year. She has broken my trust and shown that she has no financial responsibility. When I approached her about it, she swears up and down that she got her accounts/cards mixed up and it was an honest mistake and that she is really bad with money. She promises to pay the outstanding 2K in charges by next week There have been numerous late payments and finance charges affecting my personal credit as well. We don't have any partnership paperwork, only a business license, tax ID and sellers permit as well as our taxes for the past 2 years. What are my rights to the business and what legal action am I entitled to? We have a fairly successful business and she is unwilling to give up her percentage or have an uneven partnership. Is it even advisable to stay in business?If we do stay in business, how can I protect myself?
2 Answers from Attorneys
No one is going to advise you about what you "should" do in any particular case in a public forum. Among other things, you want that advice to be confidential.
A partner who uses partnership funds for personal use may have breached his or her fiduciary duty to the partnership. The solution may be as simple as deducting the amount of credit card use from the partner's draw. It may be that you should dissolve the partnership and/or buy your partner out. It may be that you need tighter financial controls and review of credit card statements to monitor this situation, or put a limit on the credit card. It may be that you need to sue your partner.
You need to meet with a business lawyer to review which option is best for you.
I would not remain in business with someone who has shown such a propensity to take that which is not theirs. What if you make more money? Will she make another "mistake" and take even more? If this was a one-off event I might be inclined to consider it a mistake, but over 6K in personal charges cannot possibly be an accident.
I would have her repay everything she owes and transfer her interest over to you through a properly drafted LLC membership interest transfer agreement. While you can likely make this a criminal matter as well, I would probably not go there if the money will be repaid and law enforcement may consider it a civil matter in any event if the facts do not support a crime.
I would suggest that you discuss this over with a lawyer in private so you can explore your options in more detail.
If you would like to discuss further over a free phone consult, feel free to contact me anytime that is convenient.
DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis
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