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  1. #1
    Join Date
    Dec 2006
    Posts
    8

    Default Misuse of Funds by the President of an LLC

    I am an investor for a LLC in Michigan and have found out that the President of the LLC has been using the money I invested for his personal expenditures.

    We have a clause in the operating aggreement that states any compensation must be a unanamous vote by the members of the LLC. He has also used the money to pay his car payments, mortgage and other personal expenses.

    What legal recourse do I have? Can I bring criminal charges against him?

    The LLC is close to disolving since the money I invested is gone.

    Please advise

  2. #2
    Join Date
    Mar 2005
    Location
    Michigan
    Posts
    28,906

    Default Re: LLC Membership

    Are you an investor, a member, or both? Are there other members besides (you and) the President?

  3. #3
    Join Date
    Dec 2006
    Posts
    8

    Default Re: LLC Membership

    I am an investor and a partner

  4. #4
    Join Date
    Dec 2006
    Posts
    8

    Default Re: LLC Membership

    There are a total of five members.

  5. #5
    Join Date
    Sep 2005
    Location
    Behind a Desk
    Posts
    98,846

    Default Re: LLC Membership

    Your recourse for your investment may be limited by your investment contract, if you have one - this sounds like it would be a pretty clear breach of contract, which would justify your filing a lawsuit.

    It's also a breach of fiduciary duty, so you and the other members should be able to direct the President to return the funds to the LLC.

    If a police report were made, a prosecutor may view these actions as embezzlement.

  6. #6
    Join Date
    Dec 2006
    Posts
    8

    Default Re: Misuse of Funds by the President of an LLC

    Thank you for your quick response.

    I have been asking for a financial printout for the past 7 months and have received nothing.

    This LLC has been active for about 2 1/2 years and the President has filed the LLC taxes writing these personal expenditures off as business expense for the LLC.

    Since he filed the taxes, are we all liable if the IRS audits the books and determines that his expenditures are not business write offs for the LLC?

  7. #7
    Join Date
    Sep 2005
    Location
    Behind a Desk
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    98,846

    Default Re: Misuse of Funds by the President of an LLC

    Why wasn't this detected sooner or, if it was, why wasn't action taken sooner?

    First you indicated that the money was spent from your investment. Now you are indicating that money was spent out of LLC income with improper deductions taken. If it's the latter, the IRS can be expected to want its money and may regard it as part of the other members' oversight responsibility to prevent or detect the improper expenses and deductions.

  8. #8
    Join Date
    Dec 2006
    Posts
    8

    Default Re: Misuse of Funds by the President of an LLC

    Once I invested in the LLC the other 4 members started taking withdrawals listing them under business expenses of different sorts. That's when I expressed my objections but it continued even after they had taken their initial investments back. They reclassified these initial withdrawals as draws but once their equity was down to $0 they began paying their personal financial obligations and listed them as business expences such as car payments, insurance, auto repairs and phone bills.

  9. #9
    Join Date
    Sep 2005
    Location
    Behind a Desk
    Posts
    98,846

    Default Re: Misuse of Funds by the President of an LLC

    It sounds like you should get a lawyer, and sue them.

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