If you suspect your business partner is stealing money, immediately consult with a business attorney, gather evidence, and protect your assets. Don’t confront them or attempt to secretly investigate, as this could worsen the situation. Legal remedies may include seeking a court order to freeze accounts, suing for damages, and potentially pursuing criminal charges.
Discovering that a business partner is stealing from your company is a serious breach of trust and a direct threat to the business itself. In Texas, partners have legal duties to act in the best interest of the company and account for all funds. Misappropriation of assets, forging transactions, or hiding financial activity may amount to theft, fraud, and a breach of fiduciary duty.
Business owners facing this situation need to act quickly and strategically: secure evidence, assess the legal implications, and protect the company’s finances without escalating the conflict unnecessarily. Under Texas law, there are clear paths to hold a partner accountable and to recover what’s been taken.
Defining Fraud and Theft in Texas Partnerships
In Texas, theft and fraud overlap but have distinct legal meanings. Under Texas Penal Code §31.03, “a person commits an offense if he unlawfully appropriates property with intent to deprive the owner of property.” In plain terms, theft requires taking company property (or cash) without consent and intending to permanently keep it.
Fraud often involves deception or false representation (such as forging invoices or tricking other partners) to wrongfully obtain money. Both can form the basis for criminal charges, but even if prosecutors aren’t involved, wrongful taking of business assets violates a partner’s fiduciary duty to the company and its investors.
Partnership law imposes strict duties on partners. Under the Texas Business Organizations Code (BOC), every partner owes the partnership and fellow partners a duty of loyalty and care. For example, a partner must account for all partnership money or profits they receive. If one partner secretly keeps business funds or takes opportunities that belong to the partnership, that partner has breached this duty.
Texas business courts recognize that a person in a position of trust must act for the business’s best interests, and “a failure to uphold this obligation that results in harm or financial loss to somebody is termed a breach of fiduciary duty.” In practice, that means misappropriating partnership funds (even if done under the guise of a loan or expense) gives the injured partners grounds to sue — often called a breach of fiduciary duty litigation.
Types of Business Partner Fraud to Watch For
Financial misconduct in partnerships often hides in plain sight. A dishonest partner may disguise theft or misappropriation as legitimate business activity, making it harder to detect early. Here are some of the most common forms of fraud that business owners should be aware of, especially when things don’t quite add up in the books:
- • Embezzlement of cash or receipts. A partner might take daily cash payments from customers or skim profits without recording it. For example, they may void sales at the register or pocket cash instead of depositing it.
- • Unauthorized loans or draws. A partner could siphon money by recording an expense or loan that the partnership never approved. Watch for money going into a partner’s personal account or unapproved advances on capital.
- • Phantom vendors or inflated invoices. Creating fake suppliers, submitting bogus vendor invoices, or inflating purchase orders are classic frauds. Money is sent out of the business but benefits the partner or their associates.
- • Misuse of credit lines or company assets. This includes running up personal charges on the business credit card, using company checks for personal bills, or taking company equipment and selling it.
- • Unusual secrecy or record-keeping. Take note if a partner suddenly restricts access to financial records, keeps two sets of books, or becomes defensive when asked routine questions. Excessive secrecy around budgets, bank statements, or contracts is a red flag that fraud might be occurring.
Each of these may appear routine at first. Keeping an eye out for unexplained withdrawals, missing receipts, or unexplained vendor payments can help catch a theft scheme early.
Immediate Steps to Take If You Suspect Theft or Fraud
Do not panic or accuse the partner directly yet. Instead, focus on protection and evidence, and laying the groundwork for whatever action comes next:
- • Stay calm and secure evidence. Carefully note what raised your suspicions (odd bank statements or inventory shortages) and make digital or paper copies of relevant documents like financial reports, transaction logs, or emails. Keep these in a safe place. Do not confront the partner before gathering proof. Alerting them may lead them to destroy evidence.
- • Engage a forensic accountant and consult a business attorney with experience in eDiscovery. While the accountant can trace irregular cash flows and quantify losses, an attorney skilled in electronic evidence can help preserve, retrieve, and analyze digital records including emails, accounting software logs, and cloud-stored documents that may reveal when and how the misconduct occurred.
- • Review your partnership or operating agreement. Check for any clauses about partner misconduct, buyouts, or removal procedures. Your agreement may spell out how to value a partner’s interest or allow forced buyouts if a partner breaches the rules.
- • Avoid direct confrontation. Emotions run high in these situations, but confronting the suspecting partner can backfire. It may allow them to cover their tracks, intimidate employees, or allege bad faith on your part. Keep the situation confidential among just the key owners and advisors.
- • Consult a business attorney confidentially. As soon as possible, get legal advice from a Texas business lawyer with experience in partnership disputes, fraud, or breaches of fiduciary duty. A lawyer can guide you on preserving privilege, advise on securing company assets (like freezing bank accounts or credit lines), and explain civil/criminal options.
Resolution Options Outside of Litigation
Litigation can be slow, costly, and public. Whenever possible, explore alternative fixes that restore your business while keeping matters private:
- • Negotiated partner exit or buyout. If the relationship is irretrievable, try to work out a buyout. Sometimes the suspect partner will agree to sell their share back to the company or the other partners at a discounted price. Having hard evidence of their misconduct gives you leverage. Make sure any agreement is documented and assets are returned before finalizing.
- • Mediation or arbitration (ADR). If trust has broken but both sides want to avoid court, consider structured alternative dispute resolution. In mediation, a neutral mediator helps you and the errant partner confidentially discuss terms. In arbitration, a neutral arbitrator hears both sides and makes a binding decision. Many partnership agreements require ADR first.
- • Consider criminal implications carefully. If the partner’s actions clearly violate criminal law, you may need to involve law enforcement. Criminal prosecution may help recover assets, but will make the matter public. Consult your attorney about timing; you may want to file a report after securing a civil settlement.
Most importantly, maintain discretion. Draft confidentiality agreements if other employees are interviewed, and use a trusted small circle of advisors. The goal is to resolve the core issue while preserving what you can of the business value and relationships.
Next Steps if You Suspect Partner Fraud
Time is critical when a partner betrays the business. Acting with evidence in hand and legal guidance protects your company’s value and reputation. Whether you negotiate a quick exit, pursue mediation, or prepare for litigation, emphasize discretion to minimize disruption. Remember that Texas business law gives you leverage: partners must account for company funds and can be sued for violating that trust. Acting quickly can also help recover more of the stolen money and deter others from taking advantage.
For support navigating these challenges, consult the Texas business litigation team at Roquemore Skiersi. Our attorneys can help secure evidence, assess your rights under state law, and plan the fastest path back to stability.
“When trust is broken in business, fast, strategic action is crucial, not just for recovery, but for survival.” — Kelvin Roquemore, Founding Partner, Roquemore Skiersi
Act now to protect your company’s future. You don’t have to face this alone. Legal experts can guide you through each step with the goal of preserving your business and making the responsible partner answer for the fraud.