Legal Question in Business Law in California

Re: did my business partner commit a crime?

You can use the courts and criminal justice system to take action to recover the money. You need to quickly consult with counsel to determine what actually can and should be done. Feel free to contact me if interested in doing so, and if the company is located in CA.

Re: did my business partner commit a crime?

He probably committed a crime, but that's the least of your worries. He has taken possession of monies that belong to the company (and thus, partially yours). If you intend to stop him, you must sue him in a civil action.

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Re: did my business partner commit a crime?

Although you use the term "partner," it would be better to think in terms describing corporations, such as co-owner, shareholder, director, etc. since partnerships involve different law and management structure.

I see you specify that California law applies, so I will assume the headquarters is in CA and the company is registered here as a "foreign" corporation. Even so, the law of the state of incorporation would prevail over CA law on basic corporate organizational matters.

I do not practice in DE and therefore my comments about DE law are limited to reciting facts noted in books while preparing this answer and should not be considered authoritative pronouncements on DE law.

Delaware Corporation Law section 141(b) seems to allow corporations with two stockholders to have only one director. The Delaware law would probably govern on this issue. A California corporation with two shareholders would be required to have two directors. If the other stockholder is the sole director, he would have a lot of power, but not unlimited. He would probably have the authority to make the ACH and bank account change. However, he would probably not have the right to withhold that information from you, and certainly would not have the right to appropriate any of the money to his own use (without at least sharing it with you 50-50 as a dividend or other distribution, and there would be limits on this).

The accounts, cash flow, etc. are the property of the corporation. An officer or director dealing with them must act faithfully on behalf of the corporation and, indirectly, all the shareholders.

Whether what your co-owner has done is innocent, a civil offense such as a breach of fiduciary duty or conversion, or a crime such as embezzlement, requires further facts such as his powers under the corporation's bylaws, whether he is a sole director, whether his intent was innocent or fraudulent, and what he has done with the money.

The facts certainly suggest a fraudulent intent, but I'd briefly give him the benefit of the doubt by making a demand for a full explanation before taking legal action. If you get no answer or an unsatisfactory answer, file a suit as soon as possible to prevent further erosion of the company's assets.

You'll need to connsider whether the civil complaint should be filed in state or federal court, and where; and whether the claims should be made as a personal action or as a stockholder's derivative suit, or both. You should also consider asking for a temporary restraining order and preliminary injunction.