WHAT CAN I DO IF MY PARTNER IS STEALING MONEY FROM THE BUSINESS?
Our firm is often asked if one co-owner of a business, say a member in an LLC, can fire his co-member for allegedly stealing money or something else of value from the business. Can you as one co-owner fire the other co-owner allegedly for stealing money from the business? The answer depends on several factors discussed in this article. As always, your Business Partnership Lawyer is here to help.
First, take a careful look at the governing documents of the LLC or corporation, that is, the operating agreement or bylaws respectively. If the governing documents state any conditions that allow for member dissociation or withdrawal, then examine those closely to determine if those conditions have been met. If the governing documents allow for the expulsion of a member or director from the company for certain conditions – felony conviction, or conversion, for example – then you may have a basis for terminating your business partner. This may trigger the provisions of a buy-sell agreement.
Second, gather whatever evidence you have to justify your case for terminating or firing your partner under the particular provisions that may apply under the governing documents. Be careful, because a wrong decision could backfire.
Third, when a partner is removed from the business, his equity in the business has to be purchased. Even if the other partner is a minority owner, his equity still has to be purchased, that is, his original investment, plus any capital interest in the company.
Fourth, if you have to force your partner out, that is, he or she is unwilling to leave or relinquish ownership or control, then you may have to file a derivative lawsuit. Note that derivative lawsuits under Virginia law have a very specific procedure that must be followed before anyone can initiate a lawsuit.
Your Virginia Business Lawyers at Fox and Moghul stand ready to assist you. Please call us to schedule a consult if you find yourself in a situation where your business partner is converting business assets and must be removed. Read more at our Parnership Dispute page here
