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Law Educator, Esq.
Law Educator, Esq., Lawyer
Category: Criminal Law
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Experience:  Attorney with over 20 years law enforcement, prosecution, civil rights and defense experience
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I have a question. I opened a new business as a sole proprietorship

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I have a question. I opened a new business as a sole proprietorship in december 2010. 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 (In March 2011). 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 (July) 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, he got paid about 30K with personal car payments, I was about 70k including personal expenses. We never discussed personal expenses, salaries nor was it stated in the shareholders agreement. We then parted ways and he finally incorporated the company himself with him as the 100% owner, opened all new bank accounts under a new tax ID took over the money and business and I left and essentially handed over the company to him. We tried to work things out, but he told me he no longer could work with me so I decided to leave and focus on my other businesses. He is now trying to come after me for embezzlement two months later and making threats to go to the FBI if I dont pay him what he is supposedly owed. Even though we signed a shareholders agreement, we never actually opened the 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 in a criminal matter? 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 or is he just blowing smoke with threats so he doesnt have to sue me and try to get me to pay him because I would fear criminal charges?
If you had a shareholder agreement then it is a valid contract even if the corporation itself was never registered as you were still considered an unincorporated corporate entity which is recognized and if you took money to which you were not entitled from the company, then he could pursue criminal charges, but in many of these cases the DA or US Attorney would refer a case like this to civil court and tell him to sue you to recover the money for the corporation.

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Customer: replied 5 years ago.
I understand the issue of the contract....however for it to be embezzlement I would have to be taking someone elses property that I had been given access to. However in this case the bank accounts that were used were registered as a sole proprietorship under my SSN 100% in my name with me as the primary. So as far as the banking was set up I was taking money from myself. So since we never registered a bank account or corporation together with it clearly showing that 50% of it belonged to him as the owner wouldnt that stand for something? I would think someone investigating this as a criminal matter would look more into the banks to where the funds were held over a shareholders agreement that was never filed with a state agency. Not sure...I feel hes trying to use this to extort me into paying him, so I want to be sure of how a state attorneys office would look at this before moving forward.
You would have had to have taken funds from the business that you were not entitled to and once you signed the partnership agreement and did not register it was still an unincorporated business entity and as such it was still considered separate from you personally. However, this is why the prosecutors will not generally take this type of case and will refer it as a breach of contract matter to civil court.
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