Legal Question in Business Law in California

Embezzlement of company funds and assets for personal use will get you sued by those harmed. It could also get you arrested. Suggest you work out a written settlement agreement with repayment or offsets among all the interested parties. Contact me if you want legal help doing it right.

As long as the amounts taken out do not exceed what you would be entitled to as profits of the LLC, AND as long as you account for them appropriately both on the LLC's books AND to the IRS, you may technically be subject to suit but it wouldn't get very far since there would be no damages. If you took more than you were entitled to or failed to properly account for it, then you could be in serious trouble.

You would look under "breach of fiduciary duty" and "embezzlement" to find similar situations.

First, it's better to be clear that the co-owners of an LLC are not "partners." An LLC is quite different from a partnership. This is a common mis-use of terms, and I understand what you're saying, but be careful in your thinking and writing.

Now, to the substance of your problem. All LLCs are supposed to have a detailed contract among the co-owners, members, managers, etc. covering how the LLC is to operate, and what the duties, responsibilities, powers and privileges of the parties are to be. This is one of the characteristics that distinguishes an LLC from a small, closely-held corporation - the freedom of the founders to agree, by contract, how the business is to be capitalized and managed. n The contract is referred to in the law as the "operating agreement."

So, in deciding whether what you did is criminal (embezzlement), a mere breach of contract, or simply performing a duty within the scope of your authority, we'd have to parse the language of your operating agreement carefully. The answer is likely to depend upon whether the bills you paid with company funds were (1) company bills foe which it was clearly responsible; (2) bills for company expenses you incurred by using your own funds or credit cards to buy things or services the company needed; or (3) your bills, unrelated to the company's business activities.

Working out of your own house has little or nothing to do with it.

Both your co-owner and you need to treat your business accounts as belonging to the business, and not your personal piggybank. A starting point would be to change the business checking account to one requiring TWO signatures on checks, withdrawals, ACH payments, wire transfers, etc. exceeding $1,000 (or whatever). Also, you both need to think of the business as something different than yourself. Not distinguishing between the owner and the business is the surest way to lose your limited liability through veil-piercing by a creditor.