My Partner Is Taking Money From the Company. What Can I Do?

First, stop guessing and start documenting

Most owners sense the problem before they can prove it: a lifestyle that does not match the salary, vendors nobody recognizes, a bookkeeper who reports only to one partner. Before any confrontation, gather what you already have lawful access to. Bank and card statements, the general ledger, payroll, distribution history, tax returns, texts and emails about money. Write down dates and amounts as you find them. Do not log into accounts or devices you are not authorized to use; evidence gathered the wrong way creates a second lawsuit.

Then send the one letter the law gives you for exactly this situation: a written demand for records. For an LLC, section 101.502 entitles a member, on written demand stating a proper purpose, to examine and copy company records reasonably related to that purpose, and section 101.503 makes the company liable for your attorney's fees if it refuses. Partners have access to partnership books under section 152.212. Investigating suspected misuse of company funds is a proper purpose. The mechanics are in an LLC member's right to records in Texas.

Is it actually wrongful?

Not every payment to a partner is theft. The agreement may authorize a salary, a management fee or draws against profits. The questions a court asks are: Was the payment authorized by the agreement or by the required vote? Was it disclosed? Was it fair to the company? A partner who pays himself an undisclosed fee, charges personal expenses to the company, or moves funds to an entity he alone owns is on the wrong side of each question.

Texas partners owe a duty of loyalty that includes accounting to the partnership for any property, profit or benefit derived from partnership business or partnership property, and refraining from dealing with the partnership on behalf of anyone with an adverse interest (Business Organizations Code section 152.205). LLC managers and managing members owe duties the company agreement defines or leaves to general fiduciary law. The duty list and the exceptions are in what fiduciary duties partners and LLC managers owe.

The claims that fit

• Breach of fiduciary duty. The central claim when a person with control over company money uses it for himself. Remedies can include disgorgement of what he gained, not only what the company lost.
• Conversion. Wrongful exercise of control over specific money or property belonging to the company or to you.
• Civil theft under the Texas Theft Liability Act. Civil Practice and Remedies Code chapter 134 makes a person who commits theft, as defined by the Penal Code, liable for actual damages plus up to $1,000 in additional damages, and the prevailing party is awarded court costs and reasonable attorney's fees. The fee award cuts both ways: a plaintiff who loses a Theft Liability Act claim pays the defendant's fees. It is a strong claim when the proof is clear and a risky one when it is not.
• Fraud. When false statements about the books or the business were used to get your money or your consent.
• Accounting. A court-supervised reconstruction of the company's finances. Section 152.211 names it as a partner's remedy. In practice a forensic accountant does the work, and the result often becomes the damages model.

Example

Suppose two members own a Plano landscaping company 50/50. One runs the office and the books. Over three years he pays an 'equipment lease' of $4,000 a month to an LLC that turns out to be his brother-in-law's shell, and the money comes back to him. The company agreement allows ordinary-course expenses but requires both members to approve any related-party transaction. The payments breach the agreement, breach the duty of loyalty, and, if the facts show intent to deprive, support a civil theft claim. The company's loss is about $144,000 plus the benefit he received. Because the company was harmed, the claim is derivative, but under section 101.463 a court can treat it as the other member's direct claim and pay the recovery to her.

Can you stop the money now?

Yes, if you can show the court why waiting would cause harm that a later judgment cannot fix. Texas Rules of Civil Procedure 680 through 684 govern temporary restraining orders and temporary injunctions. A TRO can bar transfers outside the ordinary course, require two signatures on the account, or order records preserved, but it is short-lived by rule and must be followed by a temporary injunction hearing. For a company whose assets are at risk, Business Organizations Code section 11.403 lets a court appoint a receiver over specific property in an action between partners or others jointly interested in it, when the property is in danger of being lost, removed or materially injured and other remedies are inadequate. See emergency relief in Texas business cases.

Whose claim is it?

Money taken from the company is the company's loss, so the claim is the company's, brought by an owner as a derivative suit. That matters for two reasons. A derivative suit normally requires a written demand to the company and a 90-day wait, and the recovery goes to the company, which the wrongdoer still partly owns. For companies with fewer than 35 owners the Code softens both: sections 101.463 and 21.563 let a court treat the claim as direct and pay the owner directly if justice requires. The full procedure is in derivative claims in Texas.

Police report, civil suit, or both?

They are different tools. A criminal referral can lead to restitution but you do not control it, it can take years, and prosecutors decline many business disputes as civil matters. A civil suit is yours to direct and can reach disgorgement, fees under the Theft Liability Act and injunctive relief. Many owners do both, in sequence. The tradeoffs are in whether to report business fraud to the police or sue.

Deadlines

Civil Practice and Remedies Code section 16.004 gives four years for breach of fiduciary duty and fraud, and four years for a suit between partners to settle partnership accounts, running from when their dealings together cease. Conversion claims are generally shorter. When the period begins can depend on when you discovered the taking, which is why your discovery date, and what you did once you suspected, should be written down now.

What the business pays while this goes on

A partner who is taking money is usually also the partner who knows the customers and the passwords. Moving too fast can collapse operations; moving too slowly can empty the account. The sequence that protects the business is usually: secure the records, get a litigator's read on the evidence, send the records demand and a firm letter together, and prepare the TRO papers so they are ready if the response is more transfers. Tina Wysk represents owners on both sides of partnership disputes in Dallas state and federal courts and in arbitration.