Fox Moulder’s motto was “Trust No One.” Lawyers can understand this paranoia. Divorce lawyers know spouses cheat. Criminal lawyers know clients steal (and worse). You should know that your business partners and key employees that you trust the most can betray you. This includes both majority and minority shareholders in close corporations, members of LLC’s (Massachusetts limited liability companies), and partners in partnerships. Sadly, this also includes family members in a family business.
I refer to all such persons as “partners,” because that is how people generally think of one another. The term itself, partner, holds a special meaning of trust to the business person, as it should. It’s no coincidence that the word also means a person with whom one has an intimate relationship, also founded on trust.
Trust may work fine for you, but don’t trust blindly. Someone reading this blog has a partner who is cheating them. The obvious form of this is that the cheating partner is taking more than his or her share from the business. He is paying his car payments from the company accounts while you pay for your own car. She secretly increased her salary without informing you. Maybe’s he’s paying for his mistress’ apartment. Or his cocaine addiction. Or gambling. Or her son’s college tuition. Maybe he’s going on shopping sprees with the company credit cards. Maybe she fires you when you complain. Or cuts your salary and forces you out. This is a classic freeze out.
Sometimes the partner who is not in charge of the books can cheat as well. By submitting false expenses. By moonlighting. By directing the business to his own secret company or a friend’s company. By taking the customer’s payments. By preparing to leave and start a competing business. Maybe both of you are cheating the other in your own way.
I’ve seen all of these things, and much more happen. It’s human nature to be tempted in financial matters. It’s easy to tell yourself that you deserve it because you work hard. Your partner is lucky to have you. Or to tell yourself that you’ll pay back the money next month. There is always some justification.
If you sense something is wrong, it probably is. If you nip small things in the bud, you may be able to save the business. Get involved in all aspects of the business. You need access to the company books and financial records on a regular basis. You generally have a right to this information. If you let things go for too long, it may be too late to save your company.
If you discover that your partner has cheated you in some way or the other, you do have legal recourse. That’s true even if you are not 100% clean yourself. Start to take control of the situation by addressing it directly.
Adam P. Whitney
617.338.7000
Fine print: the above is not legal advice, but general information. I cannot provide legal advice without a written fee agreement and a full review of your legal matter.
CONNECT WITH ADAM
RELATED PRACTICE AREAS
ADAM’S RECENT POSTS
BREAKING DOWN THE NLRB’S NEW JOINT-EMPLOYER RULE
GUEST POST BY BRANDON SLOANE On February 26, 2020, the National Labor Relations Board (NLRB) issued a final rule clarifying the standard for determining joint-employer status under the National Labor Relations Act (NLRA). The NLRB’s ruling is significant for any...
SEE NO EVIL: CAN YOUR BUSINESS BE HELD LIABLE WHEN YOUR EMPLOYEES ENGAGE IN OR SIMPLY OVERLOOK SEX TRAFFICKING THAT OCCURS ON COMPANY PROPERTY?
GUEST POST BY BRANDON SLOANE A District of Massachusetts court decision from November of last year has helped to clarify the liability that employers can face for illegal sex trafficking that occurs on company property. Ricchio v. Bijal, inc. (Civil Action No....
NO GOOD AT GOODBYES: WHY EMPLOYMENT ATTORNEYS ARE IMPORTANT TO USE FOR CREATING SEVERANCE AGREEMENTS
GUEST POST BY BRANDON SLOANE Severance agreements, which are contracts between an employer and an employee that contain certain rules and guidelines for when an employee is terminated, may be regarded as somewhat of an afterthought by employers. An employer might...
NEW RULING FROM MASSACHUSETTS APPEALS COURT SHOWS THE IMPORTANCE OF LLC OPERATING AGREEMENT LANGUAGE
How do Limited Liability Company Operating Agreements affect the fiduciary duties owed to co-Members of the LLC? That issue was decided in the case of Butts v. Freedman, which also involved Boston Equity Advisors LLC (“BEA”) and Outcome Capital, LLC (“Outcome”). ...
PRIME MOTOR GROUP SPLIT SHOWS TACTICS USED BY MAJORITY OWNERS AGAINST MINORITY OWNERS
This is exactly what I was talking about in this recent post: :https://awhitneylaw.com/blog/breaking-up-is-hard-to-do-ending-your-llc-membership-interest-by-sale-resignation-dissolution-or-otherwise A day after I posted my blog on LLC breakups, the Massachusetts...
GET IN TOUCH
Law Office of Adam P. Whitney
265 Franklin Street, Suite 1702Boston, MA 02110
ABOUT THE FIRM
PRACTICE AREAS
Business Litigation and Employment Law
Outside General Counsel
Shareholder / LLC / Partnership Disputes
ATTORNEYS
Adam Whitney
RESOURCES
Testimonials
Clients
Success Stories
DISCLAIMER
No attorney-client relationship is established by your use of this site. You must not send or share any confidential information about you or any legal issue without Attorney Whitney's express written permission. The content of this website may be considered advertising for legal services under the laws and rules of professional conduct. The content does not constitute legal advice. The content is for information purposes only. Legal advice cannot be provided unless you hire my firm and we perform a full review of the legal matter and the most current, applicable law. The law in your state may be different than Massachusetts, so the information in the content may be completely irrelevant if you are outside of Massachusetts.