When two or more entrepreneurs form a business partnership, the primary goal is usually to bring their resources together so they can expand their reach and grow their bottom line. Sometimes, however, things just don’t go as planned.
It is not uncommon for a partner to give in to greed and lose sight of the original goal. As a result, the disloyal partner might end up engaging in dishonest activities like fraud or misappropriation of the business’ funds and assets. So, what do you do if you learn that your once-trusted business partner is committing fraud?
Understanding how partnership fraud happens
Before figuring out how to deal with a fraudulent partner, it helps to start by understanding what amounts to partnership fraud. Generally, a business partner is deemed fraudulent when they engage in deceptive activities with the aim of realizing financial gain. For instance, when a partner diverts partnership assets to advance personal interests, then this would amount to fraud. Here are common examples of partnership fraud:
- Misappropriating inventories
- Stealing intellectual property
- Forging invoices, receipts and other business records
- Payroll fraud
As you can see, these practices can not only hurt your business but also get you in trouble with the law.
Responding to partnership fraud
If you have evidence that your partner is dishonest, do not sit back and do nothing about it. Depending on the nature and severity of the fraud, you may consider the following options:
- Buy them out
- Reduce their power and carry on with the partnership
- Dissolve the partnership
- Leave the partnership
Business partnerships, like romantic relationships, are founded on trust. If a business partner is no longer trustworthy, you have a duty to explore your options and protect your investment.