Small Business Owner Financial Improprieties

small businessRunning a small business is a big responsibility. If you are the sole proprietor of a small business, you want to do everything in your power to avoid even the appearance of financial impropriety.  Experts, including local employment attorneys, generally agree on key principals toward that end.

Do Not Commingle  Your Small Business and Personal Accounts

There are plenty of sound reasons to keep your small business and personal finances separate:

  • It could otherwise lead to some unpleasant interactions with the Internal Revenue Service;
  • It is a way to acknowledge on a psychological level that separate accounts are to be used for specific—personal or business—expenses, and the two types of expenditures are not the same;
  • Transactions will be easily organized and accounted for; there will be no need to scratch your head and wonder if a particular expenditure was for business or pleasure;
  • It is easier on your accounting bill because it is more straightforward;
  • Your personal financial information will remain private;

If You Want to Get Cash Out of Your Small Business

There are plenty of smart, legal ways to get cash out of the company if that is what you want to do. Avoid having the company write out a check to pay for your personal lawn service, or creating questionable invoices to pay for personal expenses. Instead, use strategies to get money out of the company that indicate that you are coloring within the lines. These methods provide evidence of the legitimacy of your financial decisions, help the company budget flow because payments to you are anticipated, and leave a clear paper trail delineating financial transactions. Consider any of the following:

  • Paying yourself a salary;
  • Paying yourself a distribution or dividend (if you are an S-Corp) with a company check;
  • Opting for regular owner draws, as opposed to indiscriminate withdrawals if you own the company solely;
  • If you are in a real crunch for cash, taking out a shareholder loan that has traditional terms related to interest, due date, and non-payment penalties.

If You Get Caught With Sticky fingers

In the aftermath of messy financials that point to the misuse of business funds, you could be facing a number of ugly consequences:

  • A sullied reputation;
  • Consequences associated with accounting documentation that does not square up;
  • An IRS audit, for which you will have to supply invoices, receipts, and other documentation supporting your contentions;
  • Additional income tax burdens;
  • Penalties and interest on the newly configured tax liability;
  • Changes in your personal tax liability;
  • Being targeted for future IRS attention.

[Read more…]

I Want to Sue my Business Partner for Breach of Contract

Contract BreachBreach of contract options. Let’s say you and some acquaintances are shooting the breeze about your ideas for a new business venture. One thing leads to another, and before you know it, you all agree that doing business together and sharing in the profits and losses is a great idea. This seems like a great opportunity for each of you to contribute your talents to a new enterprise. You come up with the basic tenets of the arrangement, and before you know it, you are all in business together. Everything is coming up roses, until you suspect that one person is in breach of contract. What are your options now? In a situation this complex, an experienced employment attorney could help.


Oftentimes a good mediator or arbitrator can walk you and your partner(s) through any disputes you may have. Hopefully you have a written agreement, which will make it easier to hold everyone’s feet to the fire. Even if you do not, be aware that litigation will tend to enflame an adversarial relationship, which will make working together difficult if all partners wind up staying connected to the business.


When you wrote up your initial agreement, if you included an expulsion clause, you may now be able to expel the offending partner for breach. Otherwise, expulsion is not possible, unless you dissolve the partnership altogether.

In the event you do have that expulsion clause, and you choose to exercise it, be sure your actions are in response to a serious breach of your contract; otherwise you may be the target of a lawsuit yourself.

In either case, a knowledgeable employment attorney can advise you of the pitfalls and legal requirements you will encounter.

Suing for Breach of Contract

If you can not or are not willing to expel the offending partner, you may still have a legal option to sue if financial harm has come about due to your partner’s actions. There are several situations that might justify this course of action:

  • A partner walked away from the business with not justifiable reason, breaking an agreement for participation for a specific time-period;
  • A partner misappropriated assets;
  • A partner caused the business to lose inventory or clients.

Breach of Contract Statute of Limitations

You also need to be aware of time restraints when it comes to suing a business partner.  If you have only a verbal agreement, the statute of limitations for filing suit is two years from the date of the alleged breach. When a written contract exists, the statute is four years from the breach. [Read more…]

Sexual Harassment Claims and Franchisor Liability

Sexual harassment claims and franchisor liability. If you are a franchisor and you have franchises in the state of California, you should be aware that you may be found liable if a sexual harassment claim is filed against you based on the conduct of one of your franchisees.

sexual harassment claimsThe Supreme Court of California’s decision in the case of Patterson v. Domino’s Pizza, LLC has shed some light on the circumstances in which a franchisor can be held liable. The ruling states that a franchisor will be liable for sexual harassment if “it has retained or assumed the right of general control over the relevant day-to-day operations at its franchised locations.”

The Sexual Harassment Case

The harassment claim was filed by an employee named Taylor Patterson who worked at a Domino’s Pizza franchise owned by a company named Sui Juris. Patterson filed a sexual harassment complaint under California’s Fair Employment and Housing Act (FEHA) against Sui Juris, her supervisor, and Domino’s Pizza itself. Her complaint alleged that the supervisor groped her and made lewd comments and gestures. The complaint also alleged that she faced retaliation after her father reported the supervisor’s behavior to Domino’s human resources department and to the police.

Patterson argued that Domino’s Pizza was vicariously liable for her harassment because her supervisor was Domino’s “agent, employee, servant and joint venturer.” Her complaint also stated that her supervisor acted “within the course, scope, and authority of such agency, employment and joint venture, and within the consent and permission of” Domino’s Pizza.

At trial, Domino’s Pizza argued that it was not vicariously liable for the supervisor’s behavior because the Sui Juris franchise was a separate business, and thus Domino’s was not the supervisor’s employer. The trial court agreed and dismissed the action against Domino’s. An appeals court overturned the summary judgment, but the California Supreme Court ultimately agreed with the trial court’s original ruling.

What the Ruling Means For Future Franchisor Sexual Harassment Cases

In the opinion, the California Supreme Court held that Domino’s Pizza could not be held responsible for sexual harassment by a franchisee because Domino’s never assumed “the traditional right of general control” that an employer would typically have over its employees. The court emphasized that Sui Juris, rather than Domino’s, provided the employees with sexual harassment training, and that Domino’s was not involved in Sui Juris’s hiring process.

While the court dismissed the action against Domino’s, it also affirmed that there are circumstances in which a franchisor will be liable for the conduct of franchisees. The ruling establishes that a franchisor can be liable for such conduct if “it has retained or assumed the general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees.” [Read more…]


The information on this website should not be considered to be legal advice, nor construed to be the formation of any manner of attorney client relationship. Prior to taking any form of legal action, please consult with an attorney experienced in the appropriate area of law germane to your situation. Case results and testimonials presented on or any of its related websites are germane to the facts present for each individual case and is not a promise of similar outcomes for any other cases. This website is not intended to solicit clients for matters outside of the State of California.