She needs to consult a lawyer ASAP and make sure that she is not exposed. While she will not be liable for the criminal acts of another to which she had no knowledge, as my colleague notes, she sure can be held liable for following acts now that she is fully aware that this alleged illegal activity is taking place.
Further, depending on the nature of their business there be a legal duty to disclose this information.
Again, tell her to call a few lawyers of her choosing for a free phone consultation and see if she can get some insights.
DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed with the law firm of Natoli-Lapin, LLC on the basis of this posting.
While it is hard to tell from the limited explanation, it is doubtful that your friend would be criminally liable for actions about which she had no knowledge. Now that she knows this has happened, she may have an increased duty to make sure it does not happen again.
That does not mean that her interest in the business is not a risk.
The "partner" cannot simply "remove" her from the company. That would be governed by the company paperwork or state law.
It is too bad your friend will not listen to you about seeing an attorney. There can be a lot at stake.
Your friend needs to speak with an attorney. There are two ideas being mixed here, which is criminal and civil. Could she be found guilty? I'm not sure. Could she be found liable in a civil judgment? It would depend on a few other facts that may be dictated more by corporate organization than knowledge. I strongly suggest your friend speak with an attorney.
The above statements are provided as general information and not intended as legal advice. Each matter has its own set of unique circumstances that cannot be adequately addressed without consultation. You are strongly advised to hire an attorney licensed to practice law in your state to represent you.
The first step in all of this is to determine whether or not the co-owner's actions are truly illegal from both a civil and criminal perspective. That alone merits consulting with an attorney. Assuming that the acts are criminal, there isn't a great likelihood of your friend being found culpable for the past acts unless your friend was aware of the situation and assisted in carrying out the crime. However, still assuming the acts are criminal, if they are ongoing, your friend is now aware. The longer she does nothing, the harder it will be for her to deny having a role in the crimes. And FYI if we're talking a dollar figure over $1,500.00 taken from employees, then it's a felony, and the potential prison time increases depending on the amount taken. On the civil side, even though this appears to be a small, closely-held corporation, your friend probably owes a fiduciary duty to the company to take steps to stop what is going on. The dispute between the co-owners over what's happening may also necessitate changes to the corporate structure, a buy-out, etc.
In short, the head-in-sand approach is probably the worst choice for your friend.