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How do I deal with a business partner’s fraud?

On Behalf of | Sep 14, 2022 | Business Litigation

When two or more people get into a business partnership, the primary goal is usually to combine your resources so you can grow your bottom line. However, it is not uncommon for things to fail to go as planned.

Sometimes, one of the parties may yield to greed and lose sight of the bigger picture. Consequently, the disloyal partner might engage in fraudulent activities such as theft. Clearly, fraud can bring down a business. So how do you deal with a fraudulent business partner?

Understanding partnership fraud

Basically, partnership fraud occurs when one party deliberately engages in deceptive activities with the goal of obtaining financial or personal gains from the business to the detriment of the other partners. An example would be a situation where one partner uses business assets to start a competing business without the knowledge or consent of the other partners. Common examples of partnership fraud include:

  • Falsified expenses
  • Payroll fraud
  • Inventory misappropriation
  • Intellectual property theft
  • Forged invoices and receipts and other records

Your recourse in the event of a partnership fraud

If you suspect that your business partner is engaging in fraudulent activities, it is important that you take appropriate steps to safeguard your interests (yourself and your investment). You need to start off by gathering all evidence that point to your partner’s fraudulent conduct. These may include bank statements, phone records, accounting records and text and email conversations that link the partner to fraudulent activities.

With sufficient evidence, you can have grounds for expelling the partner or dissolving the partnership depending on the nature of the contract. You may also sue the partner in question for the resulting damages.

Business partnerships are founded on trust, shared visions and complementary skills. However, if one party breaches the partnership agreement, you need to figure out how to protect your rights and interests.