When two or more people form a business partnership, the goal is to combine skills, knowledge, and resources to make a profit. Typically, most successful business partnerships are built on trust, but unfortunately, things don’t always go as planned.
Sometimes, one of the partners may lose sight of the bigger picture and get greedy. Such a partner may engage in fraudulent activities and steal from the business. If it goes unchecked, fraud may eventually bring down your business, so what can you do if you suspect a partner is committing fraud?
Understand the basics of partnership fraud
Generally, partnership fraud occurs when a partner deliberately engages in deceptive activities to enrich themselves to the detriment of the other partners. Partnership fraud can have many faces, but the most common fraudulent activity is asset misappropriation. This may take the form of:
- Check forgery: Obtaining business checks and forging the signature.
- Authorized signer fraud: A partner entitled to sign checks for business purposes issues checks to themselves.
- Expense reimbursement: Submitting excessively high expenses for reimbursement.
If a business partner engages in fraud, you (and any other partners) should take important steps to safeguard your interests. This may involve:
- Collecting evidence: Mere suspicion may not be grounds to file a suit against the partner. Therefore, you need to collect evidence of the partner violating the partnership agreement. Evidence may include phone records, bank statements, email and text conversations. You can use this evidence to expel the partner or terminate the partnership.
- Suing the partner: With sufficient evidence linking the business partner to the fraudulent activities, you can sue them for the resulting damages.
If a business partner has committed fraud, you need to move quickly before they destroy your entire business and your reputation. First, however, consider seeking legal guidance to understand your rights and options for handling this delicate issue without creating more damage.
