Everyday companies form and business partners come together with the best of intentions and hopes. Often things begin smoothly but trouble rears its ugly head down the road. If you have formed a company and have a business partner, it’s devastating to find your trusted partner stealing from you. If you find yourself in this position, it’s crucial to consult an experienced and reputable business attorney before making accusations. It’s also essential to gather evidence.
Once you have these in place, there are some facts you must know. In many states, including Illinois and Wisconsin, if you formed an LLC or corporation, the law says the company, not an individual, has the legal claim against the stealing partner, shareholder or member. This is called a derivative action. A derivation action claim can only occur after a written account of the wrong and demand for action is made to the shareholder or member in question.
You may file a derivative action claim against another shareholder who stole from the company. However, you will need to file a lawsuit on behalf of the corporation or LLC. For instance, let’s say you and your business partner were both entitled to $50K in a bonus, but, unbeknownst to you, your partner took $75k instead. Despite it feeling very personal, you do not have the claim to that $25K — your company does.
In September 2014, the Wisconsin Court of Appeals addressed a derivative action. In the case Homecare Essentials, Inc et al v Mai See Vang Yang et al, it was determined that a derivative action claim may be filed by a shareholder to protect the company from injustices:
Derivative claims “belong to the corporation, not to the complaining
In a derivative action, a shareholder assumes the mantle of a corporation itself to right wrongs committed by those temporarily in control of the corporation. The purpose of a shareholder derivative action is to prevent injustices to the corporation by allowing shareholders to enforce corporate rights and interests when the directors refuse to take corrective action.
If you know or suspect someone in your company is stealing, be sure to gather evidence and obtain legal counsel before confronting the individual with a written statement of the wrong and demanded amends. There is much at stake, including financial loss, a ruined reputation, and even criminal charges. Proceed with caution and counsel.
This article is intended to serve as a general summary of the issues outlined therein. While this article may include general guidance, it is not intended as, nor is it a substitute for, a qualified legal advice. Your receipt of this article from Lexern Law Group, Ltd. (the “LLG”) or any of its attorneys does not create an attorney-client relationship between you and the LLG. The opinions expressed in this articles are those of the authors of the article and does not reflect the opinion of the LLG.