Is your business partner, your CEO, or another company leader using the company funds for personal purposes? We have seen this many times and it’s unfortunately becoming much too common. In most situations it is majority shareholders, CEOs, and general partners who were entrusted to manage the company’s financial resources.
A misuse of company funds for personal purposes is clearly illegal. It is unlawful to use company funds like a personal piggy bank. Putting it into legal terms, it is a breach of fiduciary duty to misuse funds, especially for one’s own benefit.
The personal use of company funds may be relevant to a number of legal doctrines:
- Breach of the fiduciary duty of loyalty
- Breach of the fiduciary duty of care
- Conversion (converting company funds to personal use)
- Fraud (against the company)
- Tax Fraud (against the government)
Legal Use of Company Funds for Personal Reasons
It’s not always illegal to use company funds for personal reasons. It is possible to use company funds for personal reasons, but doing so requires the following parties either authorize it or are not defrauded by it:
- Tax authorities (IRS, state government, etc.)
- Owners of the company (shareholders, partners, LLC members, etc.)
- Creditors (creditor rights commonly arise in instances of fraud or bankruptcy)
Be aware that the courts will almost always scrutinize any authorization of using company funds for personal purposes.
Most of us are aware of one of the most famous examples – Enron CFO Andrew Fastow – We will let you research how that worked out for Mr. Fastow, if you don’t already know.
We at MCDA CCG are not attorneys and always recommend that you seek professional legal advice with an attorney experienced in this area. Attorney’s experienced in this area can advise companies on how to use company funds for personal purposes in compliance with the law. This includes ensuring other stakeholders authorize the transaction after a full disclosure of all important information. This also includes avoiding a violation of tax laws. There is a proper way for a company to pay an individual, but it cannot be done in secret.
Shareholders have a variety of rights when an owner or officer of the company is misusing company funds for personal purposes. You can learn more about business owner rights and duties, including how to enforce your rights by reaching out to us for a free consultation.
The legal information provided on this site is not intended to be taken as legal advice and is not guaranteed to be correct, complete, or up-to-date. Laws change rapidly, and MCDA CCG, Inc. cannot guarantee that all the information on the site is completely current. The law differs from jurisdiction to jurisdiction and is subject to interpretation by different courts. The law is a personal matter, and no general information or legal tool of the kind which our office provides can fit every circumstance. Therefore, if you need legal advice for your specific problem, or if your specific problem is too complex to be addressed by our tools, you should consult a licensed attorney in your area. No Legal Advice or Attorney-Client Relationship: These materials have been prepared for general informational purposes only, and are not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. You should not act upon this information without seeking advice from a lawyer licensed in your own state or country.