Ramifications of using company funds for personal use

[unlawd]

Jurisdiction

Missouri

The founder of a new Missouri Corp that has issued and sold stock has been using company funds for personal uses (i.e gas, vehicle expenses, meals, groceries, personal utilities, credit card payments, Child support, Netflix, etc). The company was just started last year. Due to getting started and the quick take off of the company, I just started working on the company books and discovered this.
My question is two fold.
1) What are the ramifications to the founder?

2) What is my liability after discovering this information? When the prospect presented itself, my husband and I invested as "partners" (although we were not smart enough to have a partnership agreement drawn up at the time, The owner is a friend although I am a little hesitant to call him that at this point!) The problem goes deeper than just the surface since other issues have also surfaced (incomplete bylaws, lack of directors, possible misappropriation of funds?)

I am not sure what measures I need to take to protect myself and also protect the shareholders as well as the company itself.

 

[army judge]

The founder of a new Missouri Corp that has issued and sold stock has been using company funds for personal uses (i.e gas, vehicle expenses, meals, groceries, personal utilities, credit card payments, Child support, Netflix, etc). The company was just started last year. Due to getting started and the quick take off of the company, I just started working on the company books and discovered this.
My question is two fold.
1) What are the ramifications to the founder?

2) What is my liability after discovering this information? When the prospect presented itself, my husband and I invested as "partners" (although we were not smart enough to have a partnership agreement drawn up at the time, The owner is a friend although I am a little hesitant to call him that at this point!) The problem goes deeper than just the surface since other issues have also surfaced (incomplete bylaws, lack of directors, possible misappropriation of funds?)

I am not sure what measures I need to take to protect myself and also protect the shareholders as well as the company itself.

You probably can't protect your investments at this point.
You might get 2 or 3 cents back on the dollar, or you could get it all.

I depends on how much SOMEONE has looted.

If you are a CPA, you are bound by the ethics of your profession and your license to reveal misdeeds.

Look at this:
...
...
Missouri Code of State Regulations: Title 20 - Department of Insurance
...
...
If you believe you have uncovered illicit activities and crimes, you can contact your local law enforcement agency, county sheriff, county district attorney or prosecutor.

You owe no duty or loyalty to the alleged thief or thieves.

All you can do is take copies of your finding (without mentioning any of this to anyone) to any of the aforementioned law enforcement agencies IMMEDIATELY.

If this is accessible remotely, make sure you document how the investigators can access the system to obtain the proof necessary to initiate a prosecution and obtain search warrants.


No need to worry about what could happen to any lawbreakers, as you know they could be prosecuted and possibly incarcerated.

Its time to worry about yourself, such that you don't get caught up in this scandal and find yourself defending your freedom.

 

[unlawd]

You probably can't protect your investments at this point.
You might get 2 or 3 cents back on the dollar, or you could get it all.

I depends on how much SOMEONE has looted.

If you are a CPA, you are bound by the ethics of your profession and your license to reveal misdeeds.

Look at this:
...
...
Missouri Code of State Regulations: Title 20 - Department of Insurance
...
...
If you believe you have uncovered illicit activities and crimes, you can contact your local law enforcement agency, county sheriff, county district attorney or prosecutor.

You owe no duty or loyalty to the alleged thief or thieves.

All you can do is take copies of your finding (without mentioning any of this to anyone) to any of the aforementioned law enforcement agencies IMMEDIATELY.

If this is accessible remotely, make sure you document how the investigators can access the system to obtain the proof necessary to initiate a prosecution and obtain search warrants.


No need to worry about what could happen to any lawbreakers, as you know they could be prosecuted and possibly incarcerated.

Its time to worry about yourself, such that you don't get caught up in this scandal and find yourself defending your freedom.

Is the offense a civil matter? That has been the response I have been given. I don't know that illicit would be something I would consider to be happening. Criminal? Well, using money for personal expenses that has been given to the company for company matters would be in my definition, stealing. That I believe is a crime regardless. I guess it is all the same.

Is the matter turned over to the shareholders? Of course, the absence of bylaws makes the board of directors a moot point. I would think that if there were no shareholders, it would be a gray area (maybe? since it would essentially be just the owner and partners??) but with unsuspecting investors, it would seem they would have a say as to what steps would/should be taken?

I understand time is of the essence. The IMMEDIATELY is then again - to whom is it reported if it is a civil offense and how.

 

[army judge]

I suspect the only remedy of value is in the criminal law arena, if a prosecutor takes the case.

It's highly unlikely that the loot pilfered is available to be recovered.

That leaves the scoundrel to pay by being tried, convicted, and incarcerated.

 

[txls]

If there are no shareholders, then the only ones who will care are the IRS and the state.. You really need the advice of a CPA, but I believe that as long as you show all of those personal expenses as distributions for tax return purposes nobody else will care. But please don't just take my word for it. You need the advice of a CPA. If you have someone else prepare the tax returns, then the personal expenses need to be brought to their attention. If not handled properly, you could have some personal liability if A) you are an officer of the corporation B) if you prepare and sign tax returns.

 

[unlawd]

If there are no shareholders, then the only ones who will care are the IRS and the state.. You really need the advice of a CPA, but I believe that as long as you show all of those personal expenses as distributions for tax return purposes nobody else will care. But please don't just take my word for it. You need the advice of a CPA. If you have someone else prepare the tax returns, then the personal expenses need to be brought to their attention. If not handled properly, you could have some personal liability if A) you are an officer of the corporation B) if you prepare and sign tax returns.

 

[unlawd]

The problem is that there ARE shareholders.

 

[army judge]

The problem is that there ARE shareholders.

The shareholders could potentially bring a lawsuit, however, by the time they do the loot has all but disappeared.

That leaves a public prosecution of some sort.
The SEC might be interested, the state tax authorities, or the IRS.
As a CPA, I suspect you're a mandated reporter of these kinds of crimes.
A lawyer would certainly be, but I know nothing about the inner workings of your profession.

 

[txls]

I'm sorry you did say that. Since the owner is a friend you could speak with him and explain why personal expenses cannot be paid out of business funds. A.) He is cheating shareholders and B) cheating the IRS and see what his reaction is ie: is he willing to immediately remedy the situation by paying back and ceasing such. However you mention other issues as well. Might be best to get out of there.