Updated on April 18th, 2023
Yes, sabotaging a business is illegal regardless of who is saboteur, e.g., business partner, competitor, family member, or customer.
Author: Brad Nakase, Attorney
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Lucy and Simon are partners in a business called “Which ‘Wich?”, a chain of restaurants that sells custom sandwiches. The chain has achieved wild success partly due its secret sauces, which the company keeps closely guarded. Without those secret recipes, any sandwich shop could copy Lucy and Simon’s recipes, and the restaurant would lose its market superiority. Unfortunately, while at a sandwich convention, Simon meets another business owner who offers him $1 million to sell him one of the secret recipes. Simon agrees, knowing it will harm his business. Simon therefore has violated his fiduciary duty to the company. What he has done also violates the firm’s trademark on the secret sauce, meaning Lucy can take him to court.
Even when entrepreneurs enter into a business partnership with the best intentions, the unfortunate reality is that partners sometimes drift apart. Worse, sometimes partners can do more than that. In fact, a partner may inadvertently or purposefully sabotage their own business for personal gain.
Business partners may have the right to control the business, disregarding specific contractual terms, but they also have legal and fiduciary responsibilities to one another. Therefore, if a partner is found to have sabotaged a partnership, he or she can be held liable by the other owners and taken to court for the damage caused.
Similar to the federal crime of sabotage, which refers generally to military activities, business sabotage is when a person or entity purposefully interferes with a business’ activities via harmful or fraudulent methods. Often, state laws designate this conduct as “unfair competition” or “breach of fiduciary duty.” A fiduciary relationship means that a person is required to act in the other person or business’ interests on matters pertaining to the relationship.
A business partner who purposefully does something that causes the partnership harm may not only face civil liability, but also criminal, if they broke any laws. For this, they could face arrest and criminal punishment. Due to the nature of business partnerships, the victimized business partner may be vulnerable to third party liability as a result of their partner’s sabotage.
To address these matters, it may be necessary to contact both the company’s attorney and the police.
Business sabotage exists in many different varieties, ranging from financing crimes like stealing to reputational damage such as the sharing of trade secrets or release of corporate data. It is a common belief that sabotage is committed by outside individuals or entities, but all kinds of businesses are vulnerable from people on the inside. This is especially true when it comes to corporate espionage and embezzlement. Individuals who may harm their own business include owners, shareholders, partners, and high-level employees.
Physical theft is when an individual, in this case a business partner, takes money, equipment, or other items off the premises for their own personal gain. They do so without permission and against the best interests of the company. An example of this would be a business partner taking a special printer home to use for his or her personal affairs, without the authorization of the other business owners. The theft of intellectual property is when a business partner takes ideas or trade secrets without authorization. In this case, their use would not be in the best interests of the company. For example, a business owner might take the secret formula for a sandwich sauce and sell it to a competitor.
Fraud is defined as when a business partner takes money and claims that they are using it for business purposes. In reality, they are using the money for personal reasons or are putting it into another business venture. This action qualifies as both a criminal and civil offense which can result in jail time as well as damages. To prove a case of fraud, a business owner must demonstrate that his or her partner lied on purpose. The business owner must show that he or she relied on the lie, and as a result, suffered harm. However, if it is found that the partner had previously shown themselves to be untrustworthy, then the owner’s case may suffer.
Like fraud, embezzlement is a criminal offense. It is defined as theft or larceny of assets committed by a person in a position of trust or responsibility for the assets. In general, embezzlement occurs when a partner is a signatory on a financial document.
Breach of fiduciary duty happens when a business owner and his or her partner share a fiduciary relationship. This is when one individual has a duty to act for the benefit of another within the bounds of the relationship. By taking money from a business account without authorization, a business partner is acting outside the scope of the relationship and is acting against the business’ interests.
It is necessary to provide evidence of the alleged theft in order to rule out potential mistakes, such as accounting errors or missed entries in the books. In general, theft follows a set pattern. Therefore, it is wise to put controls on all the business’ accounts and ask for detailed receipts for every expenditure. Receipts should be printed from a merchant’s receipt form or printer, listing the name of the business and the specific purchases. It is important to watch withdrawals from ATMs using the company credit or debit cards. If a business uses a cash register, then it may be necessary to install security cameras to catch who is removing money without authorization.
It is necessary to figure out the nature of the stealing and whether or not the issue should be taken to court. An attorney can advise on whether or not to file criminal charges. He or she can also help negotiate with the partner or the partner’s lawyer. The victimized business owner is owed civil financial damages for the breach of fiduciary duty, as well as the recovery of stolen goods or money from fraud, embezzlement, or physical theft.
It is a good idea to connect with an attorney as soon as theft is suspected. This kind of issue is very time sensitive. A team of experienced lawyers can help design a plan that will help a business owner recover his or her losses and move on with their business.
A business owner may file a criminal complaint against his or her business partner for stealing, or embezzlement. According to FindLaw, embezzlement may be defined as “theft/larceny of assets (money or property” by a person in a position of trust or responsibility over those assets.” It is probable that a business owner formed a business relationship with the partner and designated him as a signer on the business accounts. This would be because the owner trusted the partner to act in the best interests of the company. If the partner then stole money or assets from the business, he or she broke that trust and could be guilty of embezzlement.
It can be difficult to prove that a business partner stole funds from a business, especially if a business owner never imagined such a scenario arising and therefore did not prepare in advance. If a business is designed as a partnership, in most states all partners generally have the legal right to access and manage business assets. A written partnership agreement has the ability to outline and limit the power partners have to make decisions about accounts and money.
For instance, a partnership agreement has the ability to prevent partners from taking personal loans out of the business’ account. It can also limit partners from making big purchases for mixed business and personal reasons without the permission of other partners. If a business lacks a partnership agreement in writing, it can be difficult to prove that a partner is guilty of fraud. This is because the case can boil down to the owner’s word against the partner’s when it comes to how the fund was intended to be used.
If, however, a company has a written partnership agreement, then the business owner should collect evidence to prove the theft of money or assets. This evidence should include statements and receipts. It is important to ensure that one has a copy of the company’s account books and financial statements so that there is proof of expenses and income. If there is no written partnership agreement that details what qualifies as unauthorized behavior, a business owner must rely on any documentary proof that he or she can find. This documentary evidence should include the intentions of a business owner and the suspect partner, including emails, letters, and texts. Any written evidence like this can help make charges stick in court.
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