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What to do when one of four members of an LLC drains bank account and maxes out the company credit card>

Asked over 2 years ago - Santa Ana, CA

There are four partners/members in this LLC. All members are equal owners. Today three of the members discovered that the company bank account was emptied by one of the members and his business credit card had been maxed out. We suspect that he has been taking company money for at least the past year, but it did not become evident until today. We have removed this member from all bank accounts/credit cards, changed the locks on the doors and removed his login from the computer, but we are unsure of how to proceed now. We want to freeze his personal assets and get him tp return the money, but need a little guidance. Thank you!

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Attorney answers (2)

Pamela Koslyn

Reputation Level 20

Answered over 2 years ago. Business Attorney in Los Angeles, CA.

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The 3 members need to hire a business litlgator, who needs to send a demand letter to this member, or maybe just go directly to a lawsuit against this thief on the members' behalf and on the LLC's behalf, for breach of fiduciary duty, conversion, etc.

If your LLC has a written Operating Agreement, there should be a breach of that as well, as it no doubt prohibited any member from taking actions contrary to the best interests of the LLC. There may be dispute resolution procedures set out there, so you need to have a lawyer review it.

Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

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Kaiser Wahab

Reputation Level 14

Answered over 2 years ago. Business Attorney in New York, NY.

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To add to what was said before, in addition to the operating agreement, your attorney should be well versed in state partnership and corporate dispute law (statutory and case law). Each state has a body of legislation and case law that may significantly impact the options and pitfalls surrounding a dispute between members (delinquent or otherwise). For example, in NY there is a significant body of case law that is constantly affecting the outcome of these and other disputes.

Good luck.

Disclaimer: This answer is for informational purposes only and does not constitute general or specific legal advice, nor create an attorney client relationship.

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