What are the actions to take if your business partner is stealing from the company in San Diego or anywhere in California?  How can commingling of assets and funds risk the integrity of the corporate veil for your business?  If you suspect a fellow member or shareholder of stealing from your business or corporation you should not take matters into your own hands.  The experienced business ownership dispute attorneys at the Watkins Firm have more than four decades of experience and proven strategies to put a stop to theft and ultimately manage the situation internally.

If you think your business partner is stealing from the company the key is to immediately reduce or eliminate the opportunity for theft to continue by placing effective controls within the operations of your company.  Once this is in place we work with our clients to amass evidence of theft or questionable activity.  Most clients are more comfortable with having our attorneys confront the situation based upon sound evidence.  This saves the parties from a potentially risky confrontation and the embarrassment of a false accusation.

Commingling personal funds and assets with business or using business funds to pay personal debts or liabilities is a dangerous practice.  The purpose for an LLC or corporation is the protections of the corporate veil for it’s owners.  Creditors are not able to hold you personally liable and come after your personal home, accounts or other assets to satisfy business debts unless they are able to pierce the protections of the corporate veil.  Commingling is an activity which many creditors use to remove the corporate protections in order to pursue owners jointly and severally.

Pro-Tip: “For example, we’ve, we’ve had so many shareholder fights where, um, a company group of friends or a group of friends who know friends, maybe 30 people invest in a company and it’ll be doing well, but not great. And they investors, the shareholders won’t be receiving, uh, disclosures, or they will be receiving them, but they sort of don’t add up. And then they do an investigation and they come to some law firm like ours and they say, well, let’s, let’s get in there seeing the books and records and you get some pushback from the company. And that’s when all the hairs in your neck stand up and you come to the Watkins firm and we file a motion.

And we discover through our due diligence that the company’s doing very good and that they also formed an offshore corporation of the same name. And they’ve taken all the assets and they’re all driving Rolls-Royces. So this has happened more times than I can say, because it just does happen. Nobody fights over anything unless there’s money involved. If it’s just doing okay, they would tell the truth and say, it’s all great. But if that big money offer comes in the door and they have a way of, of keeping it for themselves, it’s very tempting for human nature to turn that down.

Owners and majority interests usually won’t do these things unless it’s really worth something.  Think about timing . If let’s say you don’t have a shareholder agreement, or you have a weak shareholder agreement and, management has broad discretion to do a lot of things, and they’re getting ready to do some questionable things, to make a big profit. And you come along and say, ‘wait a minute, I think something’s wrong here.’ And you pose an objection. Well, before you file a lawsuit, this opportunity that management has is still there. So if you are the squeaky wheel right away, before they go forward with whatever they’re doing, then you may profit from that. But if you’re not, then it’ll just happen. And instead of sharing in the profits, you’ll be fighting to claim you had rights to get some money back.

We’re describing what I would consider to be a conflict of interest between their obligation to their shareholders and their own personal interests.  Everybody hears the term conflict of interest and they think it’s something like special or amazing or complicated, but it’s really not. This is the oldest con game.

There is the example where you are working somewhere and you get access to checks coming in. So you go form a company in another state. That sounds just like the name on the checks that are coming in. And you start taking those checks and putting them in your own bank account. Well, think about that. If you’re a corporation you’re in management and you have a uncle that forms a company and you start sending business that way, and before, you know it, you taking assets from one company and giving it to another company, which technically you don’t have anything in writing as an ownership of, but you have a conflict of interest and you’re breaching your fiduciary duty. And so if the shareholders aren’t watching, this happens. And I would say 20% of our litigation every month is based on shareholder disputes fights between shareholders and the corporation and breach of fiduciary duty.” – Dan Watkins, Founding Partner

This is why we invite you to review our podcast Episode 14 – Shareholders Rights and Disputes as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.  If you think your business partner is stealing from the company or commingling personal and business funds and assets, our professionals will help you to get to the bottom of what is really going on and work with you to resolve the issues at hand based upon your own goals and objectives.