Good business relationships are built on trust — and discovering your partner committed fraud or financial wrongdoing can be devastating. Not only can it impact your company’s stability and reputation, but it can also disrupt your operations and harm your bottom line. If you suspect business partnership fraud or misconduct, it’s important to know what steps to take to safeguard your company.
1. Understand the Types of Business Partnership Fraud
Business partnership fraud is an intentional act of deception committed by a partner to obtain a personal gain to the detriment of the partnership. There are many different types of business partnership fraud, including the following:
- Payroll fraud
- Misappropriation of assets or inventory
- Creating fraudulent invoices or receipts
- False bookkeeping
- Forging checks
- Embezzlement
- Taking cash without recording it
- Submitting false invoices
- Self-dealing
Importantly, partners may have a fiduciary duty to act in the best interests of the partnership — any actions that prioritize personal gain over the company can be considered misconduct.
2. Gather Evidence
One of the first things you should do if you suspect your business partner is committing fraud is to gather evidence immediately. Take note of any unusual financial transactions or discrepancies, and collect all emails, invoices, bank statements, credit card statements, receipts for business expenses, and other documents that reveal wrongdoing. Be sure to document all communications with your partner and be discreet to prevent them from destroying any evidence. In some cases, a forensic accountant may be needed to help uncover a complex financial trail.
3. Take Steps to Safeguard Your Company’s Assets
As soon as you suspect business partnership fraud has been committed, it’s vital to take measures to safeguard your company’s assets. After engaging counsel to provide advice, counsel can all business activities. You may also need to implement stronger internal controls, such as segregating duties and performing routine reconciliations. Critically, you must ensure that any protective measures you implement are compliant with the law.
4. Consult with an Attorney
Business partner fraud often requires taking legal action. A knowledgeable business law attorney can evaluate your situation, gather the necessary evidence to prove your case, and advise you regarding your legal options. They can also assist you in recovering the damages you incurred due to the partner’s misconduct. Recoverable damages in a lawsuit for business partner fraud can include compensation for direct financial losses, lost profits, stolen funds, damage to the reputation of the business, and legal fees. In cases where the misconduct was particularly egregious, punitive damages may be available to punish the wrongdoer and deter others from engaging in similar actions.
5. Determine Whether the Partnership Can Continue
Fraud is a serious breach of a partner’s fiduciary duty. If your business partner committed fraud, it may be challenging to continue working with them — whether the partnership should continue may depend upon the severity of the partner’s actions. Review the partnership agreement to determine if there is guidance on how to proceed. Some options can include negotiating a dissolution, filing a lawsuit for judicial dissolution and compensation for the damages caused by the partner, or removing the partner and restructuring the business.
Contact an Experienced New York Business Attorney
If your business partner has committed fraud, a diligent business attorney can best advise you how to move forward. Offering trusted legal services to business owners on Long Island and New York City, Barnes & Barnes, P.C. handles a wide range of business disputes, including those involving partnership fraud and misconduct. Contact us at (516) 673-0674 to schedule a consultation.
