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Law Pro
Law Pro, Criminal Defense Lawyer
Category: Criminal Law
Satisfied Customers: 24870
Experience:  20 years trial experience in defense of criminal cases
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I have a question. I opened a new business as a sole proprietorship.

Customer Question

I have a question. I opened a new business as a sole proprietorship. Opened business bank accounts under a sole proprietorship tax ID. I took on a 50/50 partner a few months later and we signed a shareholders agreement for an S-Corporation. We signed the shareholders agreement but never actually filed for the corporation and I continued doing business thru the accounts as a sole proprietor. A few months later we split up as partners because he found out I was paying my personal expenses out of the account and I was taking more money than he was getting. We then parted ways and he incorporated the company himself with him as the 100% owner, opened all new bank accounts under a new tax ID and I left. He is now trying to come after me for embezzlement. Even though we signed a shareholders agreement, we never actually opened a corporation. The bank accounts I paid personal expenses from were still under a Sole Proprietorship with me as the primary. So my question is does he actually have a case for embezzlement?? Would a 50/50 shareholders agreement for a corporation that was never actually filed hold up? Or was I entitled to that money because it was still technically a sole proprietorship in my name? Is this something that can be brought against me criminally?
Submitted: 6 years ago.
Category: Criminal Law
Expert:  Law Pro replied 6 years ago.
If you didn't actually file for the corporation - then you would be considered to be a partnership.

Was your partnership agreement with him that you could pay certain personal expenses unrelated to the business?
Customer: replied 6 years ago.
Nothing was discussed in the partnership agreement related to personal expenses.
Expert:  Law Pro replied 6 years ago.
Sorry. But if you took business monies and paid personal expenses without the permission of the other partner - that's wrong. That is embezzlement.

Embezzlement is the act of dishonestly appropriating or secreting assets by one or more individuals to whom such assets have been entrusted.

embezzlement is a statutory offense so the definition of the crime varies from statute to statute. Typical elements are (1) the fraudulent (2) conversion (3) of the property (4) of another (5) by a person who has lawful possession of the property.
  • Fraudulent: The requirement that the conversion be fraudulent means simply that the defendant wilfully and without claim of right or mistake converted the property to his or her own use.
  • Conversion: Embezzlement is a crime against ownership; that is, the owner's right to control the disposition and use of the property. The conversion element requires a substantial interference with the true owner's property rights (unlike larceny, where the slightest movement of the property when accompanied by the intent to deprive one of the possession of the property permanently is sufficient).
  • Property: Embezzlement statutes do not limit the scope of the crime to conversions of personal property. Statutes generally include conversion of tangible personal property, intangible personal property and choses in action. Real property is not typically included.
  • Of another: A person cannot embezzle his own property.
  • Lawful Possession: The critical element is that the defendant must have been in lawful possession of the property at the time of the fraudulent conversion and not have mere custody of the property. If the defendant had lawful possession the crime is embezzlement. If the defendant merely had custody, the crime is larceny. Determining whether a particular person had lawful possession or mere custody is sometimes extremely difficult.

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Customer: replied 6 years ago.
It wasnt a partnership agreement, it was a shareholders agreement for a corporation that we never filed, so the bank accounts remained under a sole proprietorship with only my access to it. Not sure if that makes a difference....but the money that i paid my personal expenses with only came out of a sole proprietor account. Would this be considered a criminal or civil matter in your opinion??
Expert:  Law Pro replied 6 years ago.
Then it would be perceived as a partnership agreement. However, even if not, then you would still be subject to the state's partnership act statute if the agreement was silent on any issues.

It's how the monies went into that sole proprietor account - if they went into that account as your monies after the split - then you're fine. If not . . . .