Business Investment: deception and fraud

Business Investment: deception and fraud

If a business owner asked someone to be a business partner and invest 13,000.00 into the company but did not have the powers to do this and accepted the money and stopped paying the employee, Does the employee have a case?


Some of the question is a bit unclear and there seem to be important facts missing. Depending on the facts and circumstances any or all of the following may be relevant to addressing your situation:

  • Purchase Agreement: Usually if you buy into a business, whether you're an employee or an outsider, you should have signed a letter of intent before, and then a stock purchase agreement. That agreement should have set forth in some details what you were buying, who was selling it, the sales price, etc. A key part of a stock purchase agreement, even a simple form one, are representations and warranties by the seller as to the financial status of the corporation, etc. Most stock purchase agreements include default provisions. If the seller violates the representations, you should have some remedies specified in the agreement. Note: you used the term "company" which could mean an LLC but similar documentation (but an LLC membership interest purchase agreement instead of a stock purchase agreement would be signed).
  • Other corporate governing documents. If the business was organized as a corporation it should have minutes, by laws and perhaps other documents. These may have some relevance to determining your rights.
  • State law. Whatever type of entity, corporation, partnership or limited liability company, it is formed under and governed by state law. The state law (statute) that creates the entity will specific a number of rules (which if not modified by the agreements above) will govern your rights as a shareholder (owner). Having a business attorney (and probably a litigator) explain your rights under these rules is important.
  • Ancillary documents. There might be letters, correspondence, emails or other communications or documents confirming what was promised to you, what deal was made, etc. These may all be relevant.

The situation you describe sounds like you really need the help of an attorney that specializes in business litigation. The practical problem is that the cost will be high relative to the $13,000 you invested. You might be able to contact the bar association of the county you live in and find the name of a newer attorney who can help at a lower cost. Good luck.

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