My financial silent partner has had sole control over the corporate bank account and has misused the corporate monies, creating tax liability mess. Am I responsible?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 16, 2021

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If your silent partner in your corporation has mismanaged corporate funds, the funds you invest in the corporation may be used to pay unpaid taxes from periods in which you held stock in the corporation. If you have now sold your ownership and resigned completely from the corporation, you will most likely face tax liability on any income generated from the stock sale for the period ending on the date you sold the stock.  If you are aware of errors in accounting or tax payments in a corporation in which you hold stock, contact an experienced business attorney immediately.

What Is a Silent Partner?

A silent partner or silent investor is someone who shares an interest in your business by investing large amounts of capital, but does not share the liability risk of day-to-day decision making. The investments of a silent partner are always rewarded with either a special dividend or payroll abilities. In order for a silent partner to avoid facing liability for the decisions in the company, they must remain silent. This means that they cannot make any business decisions or even purchases with the corporation’s funds. If the silent partner does begin acting as a regular partner, then he becomes open to full liability for his actions.

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Personal Liability for a Silent Partner’s Fraud

Fortunately, your personal finances are separate from those of the corporation, so you can probably avoid personal liability for the fraud of a silent partner.  Unless you knew of the actions of your silent partner, or the silent partner removed the corporate funds and gave them to you, you are not a party to any mismanagement of money and you are not personally liable. Furthermore, if he completely stole the funds from the corporate account, then this can be written off as a business loss due to fraud; however, if the funds are ever recovered and re-deposited into the corporate account, then they will be taxable as income for the corporation.

Getting Legal Help

If you or a silent partner are committing any form of financial misconduct with corporate funds, it is imperative that you begin a formal investigation and seek to indemnify the account as soon as the misconduct is suspected. If not, you may also hold liability as a result of not acting.  If you have any questions about corporate misconduct, silent partner relationships, tax liability, or other financial questions, contact a business attorney for a consultation.

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