Legal Question in Business Law in California

Re: Fraud from a business partner

First, although you use the term "partner" in your question, it looks as though this business is set up as a corporation. People who form and run corporations together aren't partners in the true sense of the word, and it is quite important in a situation like this to be really clear on the distinction. Different laws govern the relations between, on the one hand, a partnership and its partners and third parties, and, or the other hand, a corporation, its shareholders, directors, officers, and third parties. Further, the means of withdrawing and dissociating from, or terminating, each form of business are quite different.

I have to observe that one corporate officer giving another the corporate credit card as a means of repaying $26K of supposed advances seems a bit lax; it would be more appropriate to ask for receipts or other proof of a reimbursable expenditure, then write an expense check. This could have been a violation of the fiduciary duty of care you owe the corporation if you are a director or officer.

However, this pales in comparison with what the other guy did. I'd say that there are multiple civil offenses and probably the crime of embezzlement or theft by false promise. Both the corporation itself and the other individual stockholders could bring civil actions, and the district attorney might decide to prosecute.

The civil actions would be based, at least in part, on provisions of the Corporations Code regarding loans to shareholders or unauthorized distributions.

Pleas note that cancelling your business deal, as you say, probably isn't something you can just do at your election. Relations between a corporation and its shareholders, or between diectors and the corporation, and so on, are more enduring than that, and at least in some major respects cannot simply be renounced. In addition, even ordinary contracts cannot always be rescinded unilaterally because the other party appears to have committed fraud. I think you should see a lawyer ASAP.

Remember that the corporation is a separate legal entity from the shareholders, and that it (the corporation) is the primary victim here. Although the individual shareholders probably have grounds to sue in their own names, the shareholders and directors need to consider bringing suit in the name of the corporation.

Re: Fraud from a business partner

Yes, and Yes. The sooner you take action, the sooner your chances of recovering something through civil lawsuit. That assumes he has any assets or income left to collect against. Generally, people doing that are broke and steal to live. Feel free to contact me for the legal help you'll need, if the case is in SoCal courts.