Using Company Funds for Personal Use in Minnesota

What is using company money for personal use called?

Using company money or property for personal use is commonly called misappropriation of company funds, embezzlement, or self-dealing, and the legal name depends on which claim is brought. Four legal labels cover it.

• Misapplication or waste of corporate assets. Minnesota’s corporation statute lets a court act when “the corporate assets are being misapplied or wasted” (Minn. Stat. § 302A.751, subd. 1), and the Minnesota Supreme Court described a company’s reimbursement of its officers’ and directors’ excise-tax liability as “at bottom an alleged waste of corporate assets” in In re Medtronic, Inc. Shareholder Litigation, discussed below.
• Breach of fiduciary duty. An insider who takes a benefit the company did not properly authorize breaches the duties covered in the next section. When a director or officer causes the company to pay for the insider’s own benefit, people often call that self-dealing.
• Conversion. Conversion is “an act of willful interference with personal property, ‘done without lawful justification by which any person entitled thereto is deprived of use and possession’” (DLH, Inc. v. Russ, 566 N.W.2d 60, 71 (Minn. 1997)).
• Theft. What many people call embezzlement is charged in Minnesota under the theft statute, Minn. Stat. § 609.52, and a person who steals is also civilly liable to the owner under Minn. Stat. § 604.14, covered below.

Whatever the label, the questions are the same: was the use authorized after disclosure, who owns the claim, and what records prove it.

When is an owner’s personal use of company funds unlawful in Minnesota?

Personal use of company money is unlawful when the person controlling it takes a benefit the company has not properly authorized. Directors and officers must act in the company’s best interests, LLC managers must account to the company for benefits from its property, and owners of a closely held corporation owe one another a fiduciary duty.

In my practice, I have seen this many times, and the person spending the money is most often a majority shareholder, a CEO, or an LLC manager entrusted with the company’s resources. The duties come from statute. A director “shall discharge the duties of the position of director in good faith, in a manner the director reasonably believes to be in the best interests of the corporation” (Minn. Stat. § 302A.251, subd. 1), and an officer, including a CEO, must meet the same standard (Minn. Stat. § 302A.361, subd. 1). The duties officers and directors owe a Minnesota corporation apply whether or not the person also owns shares.

In a member-managed LLC, the duty of loyalty includes the duty “to account to the company and to hold as trustee for it any property, profit, or benefit derived by the member,” including benefit derived “from a use by the member of the company’s property” (Minn. Stat. § 322C.0409, subd. 2). In a manager-managed or board-managed LLC, that duty applies to the managers or governors, and “A member does not have any fiduciary duty to the company or to any other member solely by reason of being a member” (subds. 7 and 8).

Owners of a closely held corporation, which means a corporation with no more than 35 shareholders (Minn. Stat. § 302A.011, subd. 6a), also owe duties to each other. “Shareholders in closely held corporations owe one another a fiduciary duty,” the Minnesota Court of Appeals stated in Pedro v. Pedro, 489 N.W.2d 798 (Minn. Ct. App. 1992), and that duty includes dealing “openly, honestly and fairly with other shareholders.” When the insider is the chief executive, the fiduciary duty claims against a CEO in a closely held company follow from these rules.

How can company money lawfully go to an owner?

Company money can go to an owner as compensation, a reimbursed business expense, or an insider transaction, and Minnesota statutes set approval rules for insider transactions. For a corporation, a contract or other transaction between the company and one or more of its directors is not void or voidable because the director is a party if it was fair and reasonable to the company or was approved by disinterested shareholders or directors who knew the material facts.

Under Minn. Stat. § 302A.255, subd. 1, a contract or transaction between a corporation and one of its directors “is not void or voidable because the director or directors or the other organizations are parties” if one of these conditions is met:

• The transaction was fair and reasonable to the corporation when it was authorized, and “the person asserting the validity of the contract or transaction sustains the burden of establishing” that it was.
• After the material facts were disclosed to all shareholders, it was approved in good faith by “the holders of two-thirds of the voting power of the shares entitled to vote which are owned by persons other than the interested director or directors,” or by every shareholder.
• After the material facts were disclosed to the board, a majority of the directors approved it in good faith, and “the interested director or directors shall not be counted in determining the presence of a quorum and shall not vote.”
• The payment is a distribution or merger of a kind the statute lists.

Two more rules matter for personal use. “A resolution fixing the compensation of a director or fixing the compensation of another director as a director, officer, employee, or agent of the corporation, is not void or voidable or considered to be a contract or other transaction between a corporation and one or more of its directors for purposes of this section” (subd. 2(a)). And a transaction with a director’s spouse, parents, children, siblings, and certain in-laws “is considered to be a transaction between the corporation and the director” (subd. 2(b)).

In an LLC, “All of the members of a member-managed limited liability company or a manager-managed limited liability company may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty” (Minn. Stat. § 322C.0409, subd. 6), and the operating agreement may set its own method of approval by “one or more disinterested and independent persons after full disclosure of all material facts” (Minn. Stat. § 322C.0110, subd. 5).

In my experience, there is a proper way for a company to pay an owner, but it cannot be done in secret. Board minutes or a written consent that record the disclosure and the vote should exist for any payment that benefits an insider.

What records can you demand to trace company spending?

You can demand records in writing. A shareholder of a Minnesota corporation that is not publicly held has an absolute right to the share register, records of all proceedings of the board and of shareholders for the last three years, and financial statements, and a right to other records, such as ledgers and expense reports, on showing a proper purpose. LLC members have similar rights under chapter 322C.

Under Minn. Stat. § 302A.461, subd. 4, a shareholder “has an absolute right, upon written demand, to examine and copy, in person or by a legal representative, at any reasonable time” the share register and the documents listed in subdivision 2, which include “records of all proceedings of the board for the last three years” and the annual financial statements. Other records are available “only if the shareholder, beneficial owner, or holder of a voting trust certificate demonstrates a proper purpose for the examination,” and a proper purpose “is one reasonably related to the person’s interest as a shareholder” (subd. 4(b), (d)). The statute also states that “A corporation shall keep appropriate and complete financial records” (subd. 3). If the company refuses, a court may “specifically enforce this section and award expenses, including attorney fees and disbursements, to the shareholder” (subd. 4(e)).

Separately, “Upon written request by a shareholder, a corporation shall furnish its most recent annual financial statements as required under paragraph (a) no later than ten business days after receipt of a shareholder’s written request” (Minn. Stat. § 302A.463(b)).

In a member-managed LLC, on reasonable notice and during regular business hours, a member may inspect “any record maintained by the company regarding the company’s activities, financial condition, and other circumstances, to the extent the information is material to the member’s rights and duties under the operating agreement or this chapter” (Minn. Stat. § 322C.0410, subd. 1). In a manager-managed or board-managed LLC, a member may obtain full information about the company’s activities and finances “as is just and reasonable,” but only if the member seeks the information “for a purpose material to the member’s interest as a member,” makes “a demand in a record received by the company, describing with reasonable particularity the information sought and the purpose for seeking the information,” and seeks information “directly connected to the member’s purpose” (subd. 2). An operating agreement may not “unreasonably restrict the duties and rights stated in section 322C.0410” (Minn. Stat. § 322C.0110, subd. 3). The steps for a written demand are covered in a minority owner’s right to demand company information.

Why does a claim over misused company funds usually belong to the company?

A claim that an insider took company money usually belongs to the company, because the company lost the money and any recovery goes back to it. A shareholder can still pursue it, but as a derivative claim on the company’s behalf, which requires either a demand on the board first or pleaded reasons for not making one. In a corporation’s derivative case, Minn. R. Civ. P. 23.09 also requires the complaint to “allege that the plaintiff was a shareholder or member at the time of the transaction of which the plaintiff complains or that the plaintiff’s share or membership thereafter devolved on the plaintiff by operation of law.”

The Minnesota Supreme Court’s test asks who suffered the injury and who receives the recovery: “Put more simply, when shareholders are injured only indirectly, the action is derivative; when shareholders show an injury that is not shared with the corporation, the action is direct” (In re Medtronic, Inc. Shareholder Litigation, 900 N.W.2d 401 (Minn. 2017)). Medtronic was a publicly held company, and the Court held that claims over its reimbursement of officers and directors were derivative because “corporate reimbursement of an excise-tax liability resulting from the transaction is at bottom an alleged waste of corporate assets.”

The same rule governs a closely held company. In Wessin v. Archives Corp., 592 N.W.2d 460 (Minn. 1999), minority shareholders alleged that the majority shareholder had the corporation pay personal debts, divert assets to personal use, reimburse personal expenses unrelated to the business, and pay concealed compensation. The Court held: “These claims are traditional derivative claims that rightfully belong to the corporation.” It declined to make an exception for small companies, holding that “despite the smaller number of shareholders in a closely held corporation, such shareholders are still subject to the derivative pleading requirements,” and it reinstated the dismissal of the case without prejudice.

That rule is now Minn. R. Civ. P. 23.09: “The complaint shall also allege with particularity the efforts, if any, made by the plaintiff to obtain the desired action from the directors or comparable authority and, if necessary, from the shareholders or members, and the reasons for the plaintiff’s failure to obtain the action or for not making the effort.” A derivative case “shall not be dismissed or compromised without the approval of the court.” For an LLC, a member may sue derivatively after a demand the managers or other members do not act on “within a reasonable time,” or if “a demand under clause (1) would be futile” (Minn. Stat. § 322C.0902), and a member suing directly must “plead and prove an actual or threatened injury that is not solely the result of an injury suffered or threatened to be suffered by the limited liability company” (Minn. Stat. § 322C.0901, subd. 2). An LLC derivative action “may be maintained only by a person that is a member at the time the action is commenced and remains a member while the action continues” (Minn. Stat. § 322C.0903, subd. 1). The full procedure is in how a derivative lawsuit works in Minnesota.

What can a Minnesota court order when insiders misapply company assets?

A Minnesota court can grant equitable relief, order a buyout, or dissolve the corporation when a shareholder establishes that “the corporate assets are being misapplied or wasted,” or that those in control acted fraudulently, illegally, or in a manner unfairly prejudicial toward the shareholder. LLC members have a parallel remedy for illegal, fraudulent, or oppressive conduct.

Under Minn. Stat. § 302A.751, subd. 1, “A court may grant any equitable relief it deems just and reasonable in the circumstances or may dissolve a corporation and liquidate its assets and business” in a shareholder’s action when it is established that:

• “the corporate assets are being misapplied or wasted”;
• “the directors or those in control of the corporation have acted fraudulently or illegally toward one or more shareholders in their capacities as shareholders or directors, or as officers or employees of a closely held corporation”; or
• “the directors or those in control of the corporation have acted in a manner unfairly prejudicial toward one or more shareholders in their capacities as shareholders or directors of a corporation that is not a publicly held corporation, or as officers or employees of a closely held corporation.”

For a corporation that is not publicly held, the court may order a buyout of the plaintiff’s or a defendant’s shares “if the court determines in its discretion that an order would be fair and equitable to all parties under all of the circumstances of the case” (subd. 2). In a closely held corporation, the court must consider “the duty which all shareholders in a closely held corporation owe one another to act in an honest, fair, and reasonable manner in the operation of the corporation and the reasonable expectations of all shareholders as they exist at the inception and develop during the course of the shareholders’ relationship with the corporation and with each other” (subd. 3a). A party that “has acted arbitrarily, vexatiously, or otherwise not in good faith” may be ordered to pay the other parties’ reasonable expenses, including attorney fees (subd. 4). A separate section lets a court grant equitable relief and award fees to a shareholder when “a corporation or an officer or director of the corporation violates a provision of this chapter” (Minn. Stat. § 302A.467).

Pleading a claim under § 302A.751 does not change who owns a misappropriation claim. The minority shareholders in Wessin pleaded fraud and unfair prejudice under that section, and the Court still held that their claims were derivative. Requests for a buyout or other relief for your own injury are addressed in shareholder oppression claims and the court-ordered buyout process.

For an LLC, a member may apply for dissolution when the managers, governors, or members in control “have acted, are acting, or will act in a manner that is illegal or fraudulent” or “have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the applicant” (Minn. Stat. § 322C.0701, subd. 1). Instead, “the court may order a remedy other than dissolution, which may include the sale for fair value of all membership interests a member owns in a limited liability company to the limited liability company or one or more of the other members” (subd. 2).

What personal liability does an insider face for taking company money?

An insider who takes company money without authority can be liable to the company for it, and Minnesota law limits how far company documents can excuse that liability. A corporation’s articles may limit a director’s liability for money damages, but not for a breach of the duty of loyalty or a transaction that gave the director an improper personal benefit.

The money belongs to the company. As Wessin quoted from an earlier Minnesota Supreme Court decision, “Such funds do not belong to the stockholders, but to the corporation.” Under Minn. Stat. § 302A.251, subd. 4, “A director’s personal liability to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director may be eliminated or limited in the articles,” but the articles may not eliminate or limit liability “for any breach of the director’s duty of loyalty to the corporation or its shareholders” or “for any transaction from which the director derived an improper personal benefit.” An LLC operating agreement “may eliminate or limit a member’s, manager’s, or governor’s liability to the limited liability company and members for money damages, except for” listed conduct, including a breach of the duty of loyalty and “a financial benefit received by the member or manager to which the member or manager is not entitled” (Minn. Stat. § 322C.0110, subd. 7).

Taking company money can also be theft. Minnesota’s theft statute covers a person who “intentionally and without claim of right takes, uses, transfers, conceals or retains possession of movable property of another without the other’s consent and with intent to deprive the owner permanently of possession of the property” (Minn. Stat. § 609.52, subd. 2). In a civil case, “A person who steals personal property from another is civilly liable to the owner of the property for its value when stolen plus punitive damages of either $50 or up to 100 percent of its value when stolen, whichever is greater” (Minn. Stat. § 604.14, subd. 1), and “The filing of a criminal complaint, conviction, or guilty plea is not a prerequisite to liability under this section” (subd. 4). The full set of remedies for breach of fiduciary duty and the civil claim for conversion are covered separately.

How does personal use of company funds affect the tax returns?

Federal tax law bars a deduction for personal, living, or family expenses unless the tax code expressly provides otherwise, and the owner who received the benefit may have taxable income. The code allows a deduction for ordinary and necessary business expenses, including “a reasonable allowance for salaries or other compensation for personal services actually rendered,” and counts compensation, fringe benefits, and dividends as gross income.

The federal tax code allows a deduction for “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business” (26 U.S.C. § 162(a)), and it states: “Except as otherwise expressly provided in this chapter, no deduction shall be allowed for personal, living, or family expenses” (26 U.S.C. § 262(a)). On the receiving side, gross income includes “Compensation for services, including fees, commissions, fringe benefits, and similar items” and dividends (26 U.S.C. § 61(a)).

So a personal expense recorded as a business expense can misstate the company’s return and leave income off the insider’s return. Whether a particular payment is compensation, a distribution, or a loan turns on the facts and the company’s records. For you as an owner, the company’s tax returns and the records behind them are worth including in a records demand.

How should you handle personal use of company property found during a business audit?

When an audit, whether an IRS examination or the company’s own financial review, turns up personal use of company money or property, quantify it, decide what it was, and document that decision through the people with authority to approve it. Personal use usually ends up treated in one of four ways, and each has its own rule.

• Repaid by the owner. Under the federal fringe-benefit regulation, a person “must include in gross income the amount by which the fair market value of the fringe benefit exceeds” the amount paid for it, and “if the employee pays fair market value for what is received, no amount is includible in the gross income of the employee” (26 C.F.R. § 1.61-21(b)(1)). Repayment at fair value is the cleanest correction.
• Compensation. “A fringe benefit provided in connection with the performance of services shall be considered to have been provided as compensation for such services,” and the person taxed “need not be an employee of the provider of the fringe benefit, but may be, for example, a partner, director, or an independent contractor” (26 C.F.R. § 1.61-21(a)(3), (a)(4)(ii)). In a corporation, a board resolution fixing a director’s compensation as an officer or employee is not treated as an interested-director transaction under § 302A.255, subd. 2(a), described above, so the resolution is the record to create.
• Distribution. “The board may authorize and cause the corporation to make a distribution only if the board determines, in accordance with subdivision 2, that the corporation will be able to pay its debts in the ordinary course of business after making the distribution” (Minn. Stat. § 302A.551, subd. 1), and the articles, bylaws, or an agreement may restrict distributions or set who receives them.
• Loan. A corporation may lend money to a person if the loan is “approved by the affirmative vote of a majority of the directors present” and meets one of the statute’s conditions, such as a loan to an officer or employee that “may reasonably be expected, in the judgment of the board, to benefit the corporation,” or approval by two-thirds of the voting power held by shareholders other than the interested person (Minn. Stat. § 302A.501, subd. 1). A written note with repayment terms is the record that shows it was a loan.

The quoted regulation text is from the April 1, 2025 edition of 26 C.F.R. Whichever treatment applies, I suggest recording it in board minutes or a written consent that discloses the facts, correcting the books and the affected returns with the company’s CPA, and keeping the usage logs and receipts that support the numbers. If you are a minority owner and the person who took the money is choosing the label after the fact, the approval rules in § 302A.255 and the records rights above are where to start.

How does mixing personal and company money expose an owner to creditors?

Mixing personal and company money can let the company’s creditors reach the owner’s personal assets. Minnesota courts weigh factors that include “siphoning of funds by dominant shareholder” and the absence of corporate records, and they also require “an element of injustice or fundamental unfairness” before holding the owner liable for company debts.

In Victoria Elevator Co. of Minneapolis v. Meriden Grain Co., 283 N.W.2d 509 (Minn. 1979), the dominant shareholder did not keep his property separate from the corporation’s, misrepresented corporate assets to state and federal agencies, and withdrew funds while the company was in financial trouble. The Minnesota Supreme Court affirmed a judgment holding him personally liable for the corporation’s contract debt: “Since defendant did not treat the corporation as a separate legal entity, he should not be entitled to its protection against personal liability.” The Court also stated: “Disregard of the corporate entity requires not only that a number of these factors be present, but also that there be an element of injustice or fundamental unfairness.”

The same case law applies to LLCs, “Except as relates to the failure of a limited liability company to observe any formalities relating exclusively to the management of its internal affairs” (Minn. Stat. § 322C.0304, subd. 3). For a minority owner, commingling also makes the misuse harder to trace, which is one more reason to request the records early. The rules for piercing the corporate veil in Minnesota are covered in detail separately.

How does personal use of company property affect business insurance coverage?

Personal use of company property can leave a loss outside the company’s insurance, because a business policy covers what its own terms say it covers. Policies define the insured property, the covered uses, and the people insured, and many exclude losses that are not part of the business. If a company vehicle is damaged on a family trip or company equipment is lost at an owner’s home, whether the business policy pays turns on the policy’s definitions and exclusions. I suggest reading those terms, or asking the company’s insurance agent in writing, before an owner takes company property for personal use, and checking whether the owner’s personal policy covers the gap.

Are there industry-specific regulations on owner use of company assets?

Yes. Some regulated businesses face rules on insider use of company money that go beyond the general corporate and LLC statutes. Three examples:

• Banks. Under the Federal Reserve’s Regulation O, “No member bank may extend credit to any insider of the bank or insider of its affiliates unless the extension of credit” is made “on substantially the same terms (including interest rates and collateral) as” comparable transactions with outsiders and “[d]oes not involve more than the normal risk of repayment or present other unfavorable features” (12 C.F.R. § 215.4(a)(1); text unchanged between the January 1, 2025 and January 1, 2026 editions).
• Real estate brokers. A Minnesota broker “shall deposit only trust funds in a trust account and shall not commingle personal funds or other funds in a trust account,” except for an identified sum of personal funds used “to pay service charges or satisfy the minimum balance requirements relating to the trust account” (Minn. Stat. § 82.75, subd. 4).
• Company retirement plans. An owner who acts as a fiduciary of the company’s retirement plan “shall not . . . deal with the assets of the plan in his own interest or for his own account” (29 U.S.C. § 1106(b)(1)).

Healthcare, insurance, securities, and other licensed businesses have their own regulators, and the rules for a particular license are worth checking before an owner draws on company or client money.

How does an owner’s personal use of company property affect employee morale?

Employees notice when an owner treats company property as personal property, and it changes how they treat it. When the rules for expense reports, vehicles, and equipment apply to staff but not to the owner, employees tend to see the rules as unfair and follow them less. Open, consistent policies help: a written policy on personal use, approval before use, a log of what was used, and the same rules for owners as for everyone else. If the owner’s use is approved and recorded as compensation, it stops looking like a secret perk.

Can personal use of company property lead to shareholder disputes?

Yes. Unapproved personal use often starts a dispute among owners, because it shifts company value to one owner at the others’ expense. It leads to the records demands, derivative claims, and court remedies covered above.

When an insider treats company money as personal money, the path forward is usually the same: get the records, confirm whether any approval was given after disclosure, and decide whether to pursue the company’s claim through a demand on the board or managers and whether you also have a claim for your own injury under § 302A.751 or chapter 322C. Claims like these are subject to time limits on filing suit, and Minn. Stat. § 541.05, subd. 1 sets the period for actions “for taking, detaining, or injuring personal property” and actions “for relief on the ground of fraud.” If you would like a second set of eyes on the records or a planned demand in a Minnesota ownership dispute, email aaron@aaronhall.com with a brief description of the situation.