There is a right way and a wrong way to do business, and unfortunately, sometimes people fall prey to the lure of criminal shortcuts. It’s a situation no one wants to find themselves in, but it happens—someone you relied on when starting your business turns out to be untrustworthy and is playing fast and loose with the law. Beyond simply harming the company, it also puts you in a precarious position, but options are available to mitigate the damage and shelter your company from the fallout.
Potential Criminal Activities From a Business Partner
The type of crime that has occurred and who is impacted plays a large role in how you should respond and what might eventually happen to your business partner. In Louisiana, business partners have placed their companies in peril by committing crimes such as:
- Acting for personal interest rather than following a legally required fiduciary duty and seeking the best interest of the business
- Directly stealing cash or embezzling from business accounts
- Making improper deals that violate state or federal law
- Utilizing company funds for personal use or reimbursing themselves to an improper degree
- Tax fraud
You might think you dodged a bullet if you discover any of these criminal actions and then convince your partner to stop. That may not actually be the case, however. You can still suffer serious consequences even if you didn’t personally take part in the criminal activity.
Will I Be Liable for My Business Partner’s Crimes?
Unfortunately, under state and federal law, you can be on the hook for your partner’s behavior. Defrauded clients may include you in future lawsuits, and you could come under scrutiny from law enforcement if someone else reports the illegal actions. You may be held civilly or criminally liable for your partner’s actions when:
- You reasonably should have been aware of the crime, especially if you serve in any sort of supervisor capacity
- You were aware of the crime and failed to report it or take any action
- You directly profit from the crime in some way, which is highly likely if the criminal action benefitted the company financially
Even if your partner is arrested and eventually convicted of a crime, that doesn’t necessarily end your business entity's troubles. You or the company can still face criminal or civil repercussions based on the former partner’s actions, which is why working with a lawyer is critical in this situation.
What Options Do I Have If My Business Partner Is Breaking the Law?
Even if you only have suspicions and don’t yet have hard evidence of criminal action, you should talk to an experienced business litigation attorney as soon as possible. What you should do next will vary depending on how the company was set up, and whether you are involved in a general partnership, an LLC, or a corporation.
A lawyer who has dealt with these situations before can help you craft a plan suited to your unique situation, but in general, your options will include:
- Buying out the partner to remove them from the business or forcing them to buy you out instead
- Dissolving the business entirely and starting over
- Reducing the partner’s role in the company
- Requiring that improperly used funds be reimbursed by the partner
- Resigning to remove yourself from the equation (although this may not end your liability if the criminal activity is later discovered)
- Voting out the criminal partner with shareholders or other members of the business
Not all of these options are available for every situation. For instance, you may not want to end the business or could be financially unable to do so. Beyond liability and financial issues, there are also the practical issues of needing to take up the partner’s duties, not to mention the potential reputation hit that could scuttle your company’s goals.
There are also cases where you legally can’t eject the law-breaking partner or unilaterally end the business due to how the entity was originally set up. That’s an important reason to consult with an attorney when starting a new business venture so partnership clauses can be included to assist in the event of criminal activity.
You may need to turn to Louisiana laws and statutes instead if you don’t have a contractual mechanism to eject your criminal partner from the business. If you discover criminal activity, always meet with an attorney to shield yourself from potential fallout before contacting law enforcement. Your attorney can advise you on what actions to take and what actions to avoid.
Documenting anything out of the ordinary in the business’s operation, so you have hard facts to present to law enforcement is an important step. However, it may not always be prudent to go out of your way to dig up evidence or catch someone in a criminal act, as you could tip off your partner that you are aware of the crime and cause even more problems.
It’s also important to avoid threatening to contact authorities if the business partner doesn’t reduce their capacity with the company or leave entirely. You open yourself to allegations of extortion and can be put in legal jeopardy unnecessarily. Finally, don’t remove money from accounts to shield it from the criminal partner, or even remove company property or documents from their original locations. Either action could constitute theft and see you in as much or more trouble than your partner.
Don’t Wait to Talk With a Skilled Business Litigation Attorney
Properly dealing with a criminal partner isn’t just about protecting yourself from liability and the possibility of jail time, but also shielding the company you built and ensuring it has a future. Get in touch as soon as possible to discuss your situation if you suspect someone in your company is breaking the law. We want to help you find the best path forward for both yourself and the company you’ve worked hard to build.