You’re Damned if You Blindly Trust Your Business Partner.

Posted: April 12, 2013 in Rogue Employees, Shareholder Rights

Fox Moulder’s motto was “Trust No One.”  Lawyers can understand this paranoia.  Divorce lawyers know spouses cheat.  Criminal lawyers know clients steal and worse.  And as a business and employment litigator, I know that private businesses can be be hurt by the people they trust the most, their employees and their business partners.  This includes both majority and minority shareholders, members of LLC’s, and partners in partnerships.  Sadly, this also includes family members in a family business. 

I refer to all such persons as “partners,” because that is how people generally think of one another.  I think that the term itself, partner, holds a special meaning of trust to the business person, as it should.  It’s no coincidence that the word also means a person with whom one has an intimate relationship, also founded on trust.

With trust, sometimes comes blindness, willful or otherwise.  Maybe this will work fine for you, and you and you, but someone reading this blog has a partner who is cheating them.  The obvious form of this is that the cheating partner is taking more than his or her share from the business.  He is paying his car payments from the company accounts while you pay for your own car.  He secretly increased his salary by 50% without informing you. Maybe’s he’s paying for his mistress’ apartment.  Or his cocaine addiction.  Or his son’s college tuition.  Maybe he’s going on shopping sprees with the company credit cards.  Maybe he fires you when you complain.  Or cuts your salary and forces you out.

Sometimes the partner who is not in charge of the books can cheat as well.  By submitting false expenses. By moonlighting.  By directing the business to his own secret company or a friend’s company.  By accepting and taking the customer’s payments.  Maybe both of you are cheating the other in your own way.

I’ve seen all of these things, and much more happen.  It’s human nature to be tempted in financial matters.  It’s easy to tell yourself that you deserve it, because you work hard.  Your partner is lucky to have you.  Or to tell yourself that you’ll pay back the money next month.  There is always some justification in your partner’s mind; they do not think of themselves as having done wrong.  But partners generally owe one another a strict fiduciary duty of good faith and fair dealing.

The message is obvious.  You need to be aware.  If you sense something is wrong, it probably is.  Be involved in all aspects of the business.  You also need access to the company books and financial records on a regular basis.  You generally have a right to this information.  You want a sharp CPA working for the company who will catch these issues before the problem gets too large. 

If you discover that your partner has cheated you in some way or the other, you do have legal recourse.  I have helped a number of “partners” in these most difficult situations.  Even ones who were not 100% clean themselves.  Call me and start to take some control of the situation.

By Adam P. Whitney



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