Business Partner Stealing Money: Your Minnesota Options

What Should You Do First When You Suspect Your Partner Is Taking Money?

The first step is to preserve what you can already see, have the transactions reviewed quietly, and hold off on any confrontation or access change until you know the scope. A Minnesota corporation “shall keep appropriate and complete financial records” (Minn. Stat. § 302A.461, subd. 3), and those records are your evidence.

I suggest these steps, because each protects the evidence without changing anyone’s access:

1. Copy what you can lawfully access. Download bank and card statements, the accounting file, payroll reports, and the emails you already receive. Copying changes no one’s access.
2. Write a timeline. List each payment that concerns you, the date you noticed it, and who approved it.
3. Gather the governing documents. Pull the articles, bylaws or operating agreement, any shareholder or buy-sell agreement, and recent minutes. These documents decide who can act and what the exit price is.
4. Have the numbers checked before you accuse anyone. A CPA can tell you whether a payment is a mistake, a reimbursable expense, an undocumented draw, or a taking.
5. Keep the circle small. Telling only the people who need to know limits the warning your partner gets, and anything you write to your partner may later be read in court.

I suggest waiting to confront your partner until the review is done, because records can change once the person who controls them knows you are looking.

Why Can Self-Help With the Company Bank Account Backfire?

Removing your partner from the account, freezing it, or moving money to a new account is an act of company control, and you need authority for it. That authority comes from your company’s documents or the statute. Acting without it can hand your partner a claim against you and, in a corporation’s case under § 302A.751, can shift expenses to you.

The statute’s default rules set who decides:

• A member-managed LLC. “Each member has equal rights in the management and conduct of the company’s activities.” A disagreement about an ordinary-course matter “may be decided by a majority of the members,” and “An act outside the ordinary course of the activities of the company may be undertaken only with the consent of all members” (Minn. Stat. § 322C.0407, subd. 2). Unless the operating agreement says otherwise, the statute gives each member equal rights, so in a two-member LLC neither member is “a majority of the members,” whatever each one owns.
• A corporation. “The business and affairs of a corporation shall be managed by or under the direction of a board” (Minn. Stat. § 302A.201, subd. 1). A change in banking authority is a board decision unless the articles or a shareholder control agreement say otherwise.

The owner who acts alone is judged too. Every LLC member must act “consistently with the contractual obligation of good faith and fair dealing, including acting in a manner, in light of the operating agreement, that is honest, fair, and reasonable” (Minn. Stat. § 322C.0409, subd. 4). In a closely held corporation, which chapter 302A defines as one that “does not have more than 35 shareholders” (§ 302A.011, subd. 6a), a court weighs “the duty which all shareholders in a closely held corporation owe one another to act in an honest, fair, and reasonable manner in the operation of the corporation” (§ 302A.751, subd. 3a). In a case brought under § 302A.751, a court that finds a party “acted arbitrarily, vexatiously, or otherwise not in good faith” may award the other side its expenses, including attorneys’ fees (subd. 4).

Pay is a second trap. If your partner is also an employee, Minn. Stat. § 181.79, subd. 1 bars deducting a claimed theft from wages unless the employee, “after the loss has occurred or the claimed indebtedness has arisen, voluntarily authorizes the employer in writing to make the deduction or unless the employee is held liable in a court of competent jurisdiction for the loss or indebtedness.” An authorization “shall set forth the amount to be deducted from the employee’s wages during each pay period,” and a deduction “may not be in excess of the amount established by law as subject to garnishment or execution on wages.” An employer who violates it is liable “for twice the amount of the deduction or credit taken” (subd. 2).

Someone once wrote to me after finding large wire transfers from the company account. I suggested taking backup copies of the company records and holding off on restricting the account, because restricting a company account is itself an act of control and the writer’s authority to do it was unsettled. The writer could request the statements and watch the balance without changing anyone’s access. When a partner may freeze the company bank account, and how to respond, is its own question.

How Do You Get the Company’s Books When Your Partner Controls Them?

You get the books with a written demand. A shareholder of a Minnesota corporation that is not publicly held has an absolute right to the core records, and a right to other records on a proper purpose. An LLC member’s right depends on whether the LLC is member-managed or manager-managed.

Corporations. A shareholder “has an absolute right, upon written demand, to examine and copy” the share register and the documents listed in subdivision 2, which the corporation must make available “within ten days after receipt by an officer of the corporation of the written demand” (Minn. Stat. § 302A.461, subd. 4). The list includes “records of all proceedings of the board for the last three years,” the articles, the bylaws, and the annual financial statements (subd. 2). Bank statements, ledgers, and invoices are “other corporate records,” available “only if the shareholder, beneficial owner, or holder of a voting trust certificate demonstrates a proper purpose for the examination” (subd. 4). A proper purpose is one “reasonably related to the person’s interest as a shareholder, beneficial owner, or holder of a voting trust certificate of the corporation.” Separately, on written request a corporation “shall furnish its most recent annual financial statements” within ten business days (§ 302A.463). If the corporation refuses, a court may “specifically enforce this section and award expenses, including attorney fees and disbursements” (§ 302A.461, subd. 4). Records you receive may not be used “for any purpose other than a proper purpose” (subd. 4b).

LLCs. In a member-managed LLC, a member “may inspect and copy” company records on reasonable notice “to the extent the information is material to the member’s rights and duties under the operating agreement or this chapter” (Minn. Stat. § 322C.0410, subd. 1). In a manager-managed or board-managed LLC, a member may obtain information “as is just and reasonable if” the member “seeks the information for a purpose material to the member’s interest as a member,” “makes a demand in a record received by the company, describing with reasonable particularity the information sought and the purpose for seeking the information,” and “the information sought is directly connected to the member’s purpose.” The company must answer in a record within ten days (subd. 2). “In addition to any restriction or condition stated in its operating agreement,” the company “may impose reasonable restrictions and conditions on access to and use of information,” including confidentiality terms, but “the company has the burden of proving reasonableness” (subd. 7).

I suggest a short demand that names the statute, lists the records, and states the purpose in one sentence, because a narrow, specific request is harder to refuse. Someone else once wrote to me about a treasurer who was using company funds for personal expenses, and about minutes the writer believed were inaccurate. I suggested putting each objection to the minutes in writing, with the date, because minutes stand as the official record unless corrections are made. If you also sit on the board, a director present when the board approves an action “is presumed to have assented to the action approved” unless the director “votes against the action at the meeting” or meets one of the statute’s two other conditions (Minn. Stat. § 302A.251, subd. 3). The details of shareholder inspection rights have their own page.

What Duties Does a Co-Owner Break by Taking Company Money?

A co-owner who runs the company owes duties to it. A director or officer must act “in good faith, in a manner the director reasonably believes to be in the best interests of the corporation.” An LLC member who owes the duty of loyalty must account for and “hold as trustee” any benefit from using company property. Taking company money for personal use can break those duties. In an LLC, all the members may authorize or ratify, after full disclosure, a specific act that would otherwise violate the duty of loyalty. In a corporation, a director’s transaction with the company is not void or voidable because of the director’s interest if, among other routes, it was properly approved or the person defending it proves it was fair and reasonable to the corporation.

The duties come from these sections:

• Directors. A director must act “in good faith, in a manner the director reasonably believes to be in the best interests of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances” (Minn. Stat. § 302A.251, subd. 1). The articles may limit a director’s liability for money damages, but not “for any breach of the director’s duty of loyalty to the corporation or its shareholders” or “for any transaction from which the director derived an improper personal benefit” (subd. 4).
• Officers. An officer is held to the same good-faith, best-interests, and prudent-person standard (§ 302A.361, subd. 1).
• Payments to a director or the director’s family. A transaction between the corporation and a director “is not void or voidable because” the director is a party to it if, among the statute’s other routes, the person defending it proves it was “fair and reasonable as to the corporation at the time it was authorized, approved, or ratified” (§ 302A.255, subd. 1). A transaction with the director’s “spouse, parents, children and spouses of children, brothers and sisters,” and certain in-laws “is considered to be a transaction between the corporation and the director” (subd. 2).
• LLC members and managers. The duty of loyalty includes the duty “to account to the company and to hold as trustee for it any property, profit, or benefit derived by the member” from, among other things, “a use by the member of the company’s property” (Minn. Stat. § 322C.0409, subd. 2). In a member-managed LLC the members owe it. In a manager-managed LLC, the duties “apply to the manager or managers and not the members,” and “A member does not have any fiduciary duty to the company or to any other member solely by reason of being a member” (subd. 7).

A Minnesota appellate court has rejected the argument that damages for a fiduciary breach require the wrongdoer to have profited. In TCI Business Capital, Inc. v. Five Star American Die Casting, LLC, 890 N.W.2d 423 (Minn. Ct. App. 2017), a corporate officer falsified accounting records and moved company money out and back. The Court of Appeals held that he breached his fiduciary duty because he “engaged in dishonesty toward his employer,” quoting an earlier decision that officers owe “the active duty of honesty,” and it sent the case back for a trial on damages. Answering his argument that he did not profit, the court found no authority holding that an injured plaintiff “cannot recover unless the defendant has benefited from the breach.” When an owner’s use of company funds for personal use is lawful, and when it is not, is covered separately.

How Do the Business Options Compare Before Anyone Sues?

Before a lawsuit, you have four practical moves: a direct conversation, an outside accountant’s review, new money controls adopted by a proper vote, and a buyout or written true-up. Each fits a different situation and carries a different risk. An owner can start the first two without a vote.

1. An owner-to-owner conversation. It fits when the relationship still works and the payments may be sloppy bookkeeping rather than taking. It costs little. The risk is warning a partner who is hiding something, so I suggest having it after the records are preserved and with the accountant’s numbers in hand.
2. An outside accountant’s review. A CPA reconciles the accounts and classifies each disputed payment. It fits when the amount or the nature of the payments is unclear, and the later options depend on its numbers. It costs a professional fee, and it can end the dispute if the payments turn out to be legitimate.
3. New money controls by a proper vote. The owners or the board can require two signatures above a set amount, move bookkeeping to an outside firm, or change who holds the cards. A corporation’s board may remove an officer “at any time, with or without cause, by a resolution approved by the affirmative vote of a majority of the directors present,” subject to any shareholder control agreement and “without prejudice to any contractual rights of the officer” (Minn. Stat. § 302A.341, subd. 2). In a manager-managed LLC, “A manager may be removed at any time by the consent of a majority of the members without notice or cause,” and removal “does not discharge any debt, obligation, or other liability” the manager incurred (§ 322C.0407, subd. 3). That majority vote is a default: the operating agreement governs “the rights and duties under this chapter of a person in the capacity of manager or governor,” and “To the extent the operating agreement does not otherwise provide for a matter described in subdivision 1, this chapter governs the matter” (§ 322C.0110, subds. 1, 2). It fits when you have the votes. One risk is acting without them. Another is that a removal can itself be challenged. § 302A.751, subd. 1 reaches conduct “unfairly prejudicial toward one or more shareholders” in their capacities “as officers or employees of a closely held corporation.” An LLC’s oppression ground, among its other conditions, reaches conduct toward a member’s capacity as “a member, manager, or governor” or as “an employee of a limited liability company with 35 or fewer members” (§ 322C.0102, subd. 18).
4. A buyout or a written true-up. If you want out, or want your partner out, a negotiated price avoids a court deciding who sells. Buying out a co-owner lets you set terms a court might not, such as payments over time and a release. If your partner is also an employee, a release of Minnesota Human Rights Act claims arising before or at signing “may be rescinded within 15 calendar days of its execution,” unless it settles a claim already filed with an agency or court, and the releasing party “shall be informed in writing of the right to rescind the waiver or release” (Minn. Stat. § 363A.31, subd. 2). If the company has “twenty or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year” and your partner is among the “individuals who are at least 40 years of age,” a release of federal age-discrimination claims must be “knowing and voluntary,” which requires, among other terms, that “the individual is given a period of at least 21 days within which to consider the agreement” and may revoke it “for a period of at least 7 days following the execution of such agreement” (29 U.S.C. § 626(f)(1); § 630(b); § 631(a)). A creative alternative is a true-up: the accountant books the personal payments as draws against your partner’s share, and the owners either equalize with matching distributions to the others or set a repayment schedule. Matching distributions must meet the solvency limits: a corporation’s board may authorize one “only if the board determines, in accordance with subdivision 2, that the corporation will be able to pay its debts in the ordinary course of business after making the distribution” (§ 302A.551, subd. 1), and an LLC “may not make a distribution if after the distribution” it “would not be able to pay its debts as they become due in the ordinary course of the company’s activities,” among other limits (§ 322C.0405, subd. 1). In an LLC, all the members may “authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty” (§ 322C.0409, subd. 6). In a corporation, one route is good-faith approval after full disclosure “by (1) the holders of two-thirds of the voting power of the shares entitled to vote which are owned by persons other than the interested director or directors, or (2) the unanimous affirmative vote of the holders of all outstanding shares” (§ 302A.255, subd. 1). A true-up fits when trust can be rebuilt and the amount is known. Your CPA can tell you how the reclassification affects the returns.

How Does a Demand Letter Work, and What Must It Avoid?

A demand letter states what was taken, the evidence, and what you want: repayment, a records production, a meeting, or a buyout discussion. It fits when the conversation failed or was not safe to have. It must not tie repayment to a promise not to report a crime, because Minnesota makes a threat of a criminal charge coercion when it “thereby causes another against the other’s will to do any act.”

Minnesota’s civil theft statute provides that a person “may make a written demand for payment for the liability imposed by this section before beginning an action, including a copy of this section and a description of the liability contained in this section” (Minn. Stat. § 604.14, subd. 6). That liability is the value of the property “plus punitive damages of either $50 or up to 100 percent of its value when stolen, whichever is greater” (subd. 1), when the partner “steals,” which the Court of Appeals read to mean wrongfully and surreptitiously taking property “for the purpose of keeping it or using it,” as explained in the next section. That liability runs “to the owner of the property,” and the owner of company money is the company.

The line not to cross is in Minn. Stat. § 609.27, subd. 1. It provides: “Whoever orally or in writing makes any of the following threats and thereby causes another against the other’s will to do any act or forbear doing a lawful act is guilty of coercion.” The listed threats include “a threat to make or cause to be made a criminal charge, whether true or false.” I suggest keeping repayment and any police report as two separate decisions, because a repayment negotiated on the civil claim alone involves no threat of a criminal charge.

A letter also sets the tone of any later case. A court deciding a § 302A.751 claim may shift expenses against a party that acted “arbitrarily, vexatiously, or otherwise not in good faith” (§ 302A.751, subd. 4), so a measured letter backed by records protects you as well as your partner.

What Can a Minnesota Court Order Against a Partner Who Took Money?

A Minnesota court can order the money repaid, order other equitable relief, order a buyout of either owner at fair value (or, in a corporation, at a binding buy-sell price unless unreasonable), or dissolve the company. In a corporation, “the corporate assets are being misapplied or wasted” is its own ground. In an LLC, a member’s grounds include conduct by those in control that is illegal or fraudulent, or that is oppressive and directly harmful to the member.

Corporations. Under Minn. Stat. § 302A.751, subd. 1, a court “may grant any equitable relief it deems just and reasonable in the circumstances or may dissolve a corporation” in a shareholder’s action when it is established that, among other grounds:

• those in control “have acted fraudulently or illegally toward one or more shareholders in their capacities as shareholders or directors, or as officers or employees of a closely held corporation”;
• those in control “have acted in a manner unfairly prejudicial toward one or more shareholders in their capacities as shareholders or directors of a corporation that is not a publicly held corporation, or as officers or employees of a closely held corporation”; or
• “the corporate assets are being misapplied or wasted.”

The court may then “order the sale by a plaintiff or a defendant of all shares” to the corporation or the moving shareholders “if the court determines in its discretion that an order would be fair and equitable to all parties under all of the circumstances of the case,” at “the fair value of the shares as of the date of the commencement of the action or as of another date found equitable by the court” (subd. 2). If the shares are already “subject to sale and purchase pursuant to the bylaws of the corporation, a shareholder control agreement, the terms of the shares, or otherwise,” the court “shall order the sale for the price and on the terms set forth in them, unless the court determines that the price or terms are unreasonable under all the circumstances of the case” (subd. 2). The owner who sues can be the one ordered to sell. The case “shall be brought in a court within the county in which the registered office of the corporation is located” (subd. 5). When a corporation, officer, or director “violates a provision of this chapter,” a court may also grant equitable relief and award the shareholder’s expenses, including attorneys’ fees (§ 302A.467). A shareholder oppression claim builds on these grounds.

LLCs. A member may apply for dissolution on grounds that include that those in control “have acted, are acting, or will act in a manner that is illegal or fraudulent” or “have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the applicant” (Minn. Stat. § 322C.0701, subd. 1). “Oppressive” is a defined term: the conduct must have frustrated an expectation of the member that “is reasonable in light of the reasonable expectations of the other members,” among other conditions, and it “is not oppressive solely by reason of a good faith disagreement as to the content, interpretation, or application of the company’s operating agreement” (§ 322C.0102, subd. 18). Instead of dissolution, the court may order “the sale for fair value of all membership interests a member owns in a limited liability company to the limited liability company or one or more of the other members” (§ 322C.0701, subd. 2). The application “must be brought in a court within the county in which the registered office of the limited liability company is located” (subd. 3).

Civil theft. “A person who steals personal property from another is civilly liable to the owner of the property for its value when stolen plus punitive damages of either $50 or up to 100 percent of its value when stolen, whichever is greater” (§ 604.14, subd. 1). The owner of company money is the company. In TCI, the Court of Appeals read “steals” to mean that a person “wrongfully and surreptitiously takes another person’s property for the purpose of keeping it or using it.” Applying that reading in what the court called “unusual circumstances,” it held that an officer who moved money out and back with no intent to keep or use it did not steal it. One judge dissented on that point. A partner who spent company money on personal bills is in a different position, and the civil theft statute page covers its reach.

Minnesota sets time limits on each of these claims, and the limits differ by claim.

When Is a Claim for Taken Money the Company’s Rather Than Yours?

A claim for money taken from the company belongs to the company when the company lost the money and any recovery would go back to it. You bring that claim on the company’s behalf, as a derivative claim, with added steps. You sue in your own name for an injury the company does not share, even if other owners share it.

For corporations, the Minnesota Supreme Court restated the test from its earlier decisions in In re Medtronic, Inc. Shareholder Litigation, 900 N.W.2d 401 (Minn. 2017), a case about a public company’s merger. The court put it simply: “when shareholders are injured only indirectly, the action is derivative; when shareholders show an injury that is not shared with the corporation, the action is direct.” Quoting an earlier decision, the court said claims based on “misappropriation and waste of corporate assets” are “traditional derivative claims.” In the court’s words, claims found derivative are “subject to the demand and pleading requirements” of Minnesota’s court rule for derivative actions. Bringing a claim under chapter 302A does not by itself make it direct: the court looks “not to the theory in which the claim is couched, but instead to the injury itself,” quoting the same earlier decision.

For LLCs, the statute sets the rules:

• Direct claim. A member “must plead and prove an actual or threatened injury that is not solely the result of an injury suffered or threatened to be suffered by the limited liability company” (Minn. Stat. § 322C.0901, subd. 2).
• Demand first. A derivative claim requires a demand that the others cause the company to sue, and their failure to bring the action “within a reasonable time,” unless “a demand under clause (1) would be futile” (§ 322C.0902).
• Stay a member. The plaintiff must be “a member at the time the action is commenced and remains a member while the action continues” (§ 322C.0903, subd. 1).
• The money goes to the company. Proceeds “belong to the limited liability company and not to the plaintiff,” and a successful plaintiff may recover “reasonable expenses, including reasonable attorney fees and costs, from the recovery of the limited liability company” (§ 322C.0906, subds. 1, 2).

That rule matters to your plan: a derivative win refills the company account your partner can still reach, so I suggest weighing a buyout or new money controls in the same case. The steps of a derivative lawsuit are covered on their own page.

Who Else Can Help: CPAs, Forensic Accountants, and Police?

A CPA reconciles the books and tells you what each payment was. A forensic accountant traces money through accounts when it was moved to hide it. The police are a separate choice, because theft is a crime only with the intent the statute requires, and your civil claim does not depend on a criminal case.

• A CPA. The company’s own CPA, or one you hire, can compare the bank records with the books, flag personal charges, and prepare the numbers for a conversation, a true-up, or a buyout.
• A forensic accountant. When money moved through several accounts or vendors, a forensic accountant can trace it and testify about it. The cost is higher, so I suggest it when the amount or the concealment justifies it.
• The police. Minnesota’s theft statute covers a person who “intentionally and without claim of right takes, uses, transfers, conceals or retains possession of movable property of another without the other’s consent and with intent to deprive the owner permanently of possession of the property,” and one who “with intent to defraud, diverts corporate property other than in accordance with general business purposes or for purposes other than those specified in the corporation’s articles of incorporation” (Minn. Stat. § 609.52, subd. 2). A report gives your timeline to the police. Your civil case does not wait for one: “The filing of a criminal complaint, conviction, or guilty plea is not a prerequisite to liability” under the civil theft statute (§ 604.14, subd. 4).

You can make the records demand, hold the conversation, and hire the accountant yourself.

Choosing Your Next Step

A partner taking company money is a problem with several exits. The sequence that keeps all of them open is to preserve the records, have an accountant review them, demand the books in writing, and act on the company’s money only through a proper vote. From there you can talk, adopt new controls, negotiate a true-up or a buyout, send a demand letter, or ask a court for relief under § 302A.751 or § 322C.0701. If the relationship cannot be repaired, the options for getting out of a bad business partnership pick up from here.

If you own part of a Minnesota company and suspect a co-owner is taking money, email [email protected] with a brief description, and I can start an intake and conflict check before you send any confidential documents. More on this area is on my ownership disputes page.