Is it legal for an employee of a public company to use company funds for all personal purchases to avoid paying a judgement against them?

I got involved with a small public company awhile back and after a few months learned the boss not on the board but literally runs the business uses the company accounts to pay for all his personal expenses. Food, rent, car payment, coffee, etc. the reason he does this is to avoid having any money in his name to avoid paying a large government judgement against him. This seems wreck less and misleading to shareholders. Is this legal?

Asked on February 19, 2016 under Business Law, Georgia

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

If he is diverting company funds to personal use and thereby depriving shareholders of value, the shareholders could bring a lawsuit to force him to account for his actions. If his actions/expenses are found to be improper, he could be forced to repay them. There are problems with doing this, though:
1) Generally, it's the board of directors which polices this and which would take action; if the directors won't, it can be very difficult to get a court to allow a suit by other shareholders, and even if the suit is allowed, if the directors knew and approved of his actions, it would be difficult to show they were wrongful, since they were approved by those who represent the shareholders.
2) Say that he has impropely taken $200k, but that a shareholder who objects only owns 2% of the company; even if all the money came back to the company *and* was distributed to the shareholders, the one who brought the suit only benefits by around $4k, which may not justify the effort and cost (since while the company may be orderd to pay legal fees, there's no guaranty they would) of a lawsuit.


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