Getting into a business partnership with a like-minded party can be a very exciting and fruitful strategic move. With the right partner, you can pull resources together, share insights and grow your bottom line. But a business partnership does come with its share of demerits too.
Sometimes, one of the partners may give in to selfish ambitions and lose focus on the bigger picture. As a result, they might take to fraudulent activities. Certainly, this can not only bring down the business but also lead to costly legal battles. So, what do you do if you learn that your business partner is insincere?
How partnership fraud happens
Generally, partnership fraud happens when one or more partners willfully engage in deceptive practices with the goal of realizing personal or financial gains at the expense of the other partners and the business. For instance, a partner may divert business assets like cars to advance personal interests without the knowledge and approval of the other partner. Here are common ways a partner may commit fraud against the business:
- Falsifying business expenses
- Misreporting inventory
- Theft of intellectual property
- Forgery of business receipts, invoices and other financial records like employee payrolls
Basically, most of these activities are criminal in nature. Thus, you may take legal action against a partner who perpetrates them.
What recourse do you have if your partner commits fraud?
If you suspect partnership fraud, it is important that you take immediate steps to safeguard your interests (yourself and the investment). Start off by gathering as much evidence of fraud as possible. These may include phone and other communication records, bank statements as well as audit reports that link the partner in question to the specific fraud.
With your evidence, you may refer to the partnership agreement to determine the most appropriate cause of action. This may include expelling the partner, dissolving the partnership or taking legal action.