If you’re in a business partnership, whether as a partner, shareholder, or member, and you suspect your partner is stealing, embezzling, or otherwise cheating the company, take actions to enable yourself to prove it. Save all financial data that you can. Have access to the company QuickBooks file? Download it, and keep the file somewhere safe. The same goes for bank account statements and credit card statements. Save tax returns, payroll records, invoices, and receipts. If you confront your partner, he or she could, even if illegally, revoke your access to these documents or even to the business generally. Your partner may also start to cover his or her tracks. It’s wise to develop a plan with your attorney before you raise the issue.

Beyond securing accessible records, you should work with your attorney to develop a strategy for rectifying the problem. Tools at you and your attorney’s disposal include statutorily-protected demands for documents, corporate actions to end the misappropriation, forensic accounting audits, removal of the partner, or a fair value buyout of your interest in the company. In some cases, these matters are resolved through negotiation. In others, lawsuits are ultimately necessary.

When partnership problems become apparent, seeking your attorney’s help immediately generally pays dividends in the long run. Self-help early in disputes can create expensive problems to solve in litigation.

The de facto manager had a 50% interest in the company, and two other members shared the remaining 50% interest.

After an eleven-day trial, the trial court found that the de facto manager breached his fiduciary duties by making “unilateral, unauthorized decisions,” including: (1) hiring an attorney in the litigation and paying him with company funds; (2) compensating another business of his with company funds; (3) falsifying articles of amendment to the operating agreement; (4) opening bank accounts, funded with company money, accessible only by him and his son by not his co-owners; and (5) directing the company’s accountant to file tax returns that ignored the other members’ ownership interests in the company. Id. ¶ 34.

On appeal, the de facto manager argued that he was not the legal manager and therefore had no fiduciary duties. See Id. ¶¶ 63, 66. He also argued that if he have did have fiduciary duties, the trial court erred by deciding that he had breached them. Id. The Appellate Court rejected the de facto manager’s argument regarding the existence of fiduciary duties because under the Illinois LLC Act, a member in a manager-managed LLC may have fiduciary duties to other members “if the member ‘exercises the managerial authority vested in a manger by the Act.” Id. ¶ 67 (citing 805 ILCS 180/15-3(g).)

The Appellate Court also affirmed the trial court’s finding that the de facto manager breached his fiduciary duties to the other members by unilaterally making decisions to the detriment of the other members without their authorization, as described above. Id. ¶ 69. Further, the other members were damaged by the de facto manager’s payment of his own attorney fees in the litigation with company money. Id. ¶ 71.