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What happens if your business partner is cheating you?

On Behalf of | Feb 4, 2022 | Commercial Litigation

Louisiana business owners understand that in order to succeed, they must set goals and have the vision necessary to see things through to their completion. Starting a business with one or more partners can make a lot of sense if everyone’s noses are pointing in the same direction and they share the same goals and objectives.

Unfortunately, relationships can sour, and when they do it can affect not only how the partners communicate, but also how they conduct business. If one partner suspects the other of engaging in illegal activity, such as stealing from the company, this can be grounds for a lawsuit.

What kind of legal action is appropriate?

There are many activities in which a partner may be engaging that could fall under the heading of fraud, such as:

  • Skimming cash, or otherwise misusing company assets
  • Theft or disclosure of the company’s intellectual property or trade secrets
  • Financial statement fraud

While fraud can be either a criminal or civil offense, the civil equivalent of theft is commercial conversion, in which the perpetrator either steals the business’s property or keeps the business from possessing it.

There are other legal options that are available when one partner steals from another partner or from the business, and these may involve civil or criminal charges. If it is a question of theft, such as taking money from business accounts, the wronged partner may sue for breach of fiduciary duty. In a fiduciary relationship, each party owes the other a duty to act in the best interests of the other. Stealing from the company does not benefit the partner or the business, and so this constitutes the breach.

Such action may also be grounds for embezzlement, which would be a criminal charge against the business partner. Stealing assets when in a position of trust or responsibility within a business is a violation of that duty of trust, and grounds for embezzlement charges.

The slippery slope of proving liability

In a partnership in Louisiana, all partners have the legal right to access and manage the business’s assets, unless there is a written agreement limiting those powers. In a general partnership, this can place all partners at risk, as all are personally liable for the business’s obligations. Without limitations in place to prohibit certain activities, one partner could use business accounts for both business and personal uses with no accountability.

With a written agreement clearly stating the powers, limitations and duties of the partners, the paper trail will more easily prove illegal actions, because then the illicit activity will not boil down to one partner’s word against the other’s.

When involved in a business dispute, Lafayette business owners should be aware of all options for protecting their interests, even if it means enforcing their legal rights in court.