Legal Question in Business Law in California

Re: Fraud or no fraud?

Just using your business (sole prop) for personal use is not necessarily illegal, but it can open you up to a world of litigation with regards to creditors or torts. It is definitely ill advised, but whether or not it is illegal depends on a number of different factors: 1). Does he own the company outright (is there any investors he might be defrauding); 2). Is he taking these personal expenses as business deductions on his tax return (almost certainly not allowed); 3). does he have any lenders (credit card companies, lease holder on the BMW) who might view this behavior as a breach of their agreement?; 4). does the company recieve any government or public grants, etc, that might prohibit this type of behavoir.

There are other issues that could come into play as well. If you feel foul play is at hand, you might want to think about contacting the authorities, SEC, IRS, or his creditors. Falsely accusing someone of such actions however, could open you to liability.

Re: Fraud or no fraud?

One more thing to add to Mr. Burton's response: If the guy is cheating the federal or state governments (other than mere tax evasion, I am talking about his submitting false claims) then there is a special law that provides a reward to whistleblowers - if this is true, consult a lawyer with experience in false claims litigation!

The IRS also sometimes pays a reward if there is a sufficiently large tax evasion case.

If the company uses pirated software, contact the Business Software Alliance and ask about possible rewards.

Re: Fraud or no fraud?

I agree with the previous answers, and would add a couple more thoughts.

First, fraud may not be the only label that's appropriate. Depending upon whose ox is being gored, this could be embezzlement or conversion - the first a crime, the second a tort.

Next, if the business is a corporation, even if this guy is the sole stockholder, it may be a breach of the Corporations Code for him to bleed money out of the corporation in excess of its current and retained earnings. The money being bled out would be considered a "distribution" to the owner, like a dividend, and distributions in excess of earnings are illegal (unless the company is being dissolved and liquidated, in which case the creditors have to be paid before the insiders get a dime).