What's the difference between breach of trust and embezzlement? If company funds are taken, first look at "who originally held this money?"

I. What is the biggest difference between business misappropriation and breach of trust?

Simply put, the core of business misappropriation is "taking what belongs to others as one's own property that was originally held for business purposes"; the core of breach of trust is "when handling affairs for others, violating one's own duties and causing damage to the property or interests of others".

Article 336, Paragraph 2 of the Criminal LawAccording to regulations, anyone who misappropriates property held in the course of business is guilty of embezzlement, and the current statutory penalty is imprisonment for not less than six months and not more than five years, and may also be fined not more than 90,000 yuan.

Article 342 of the Criminal LawThe crime of breach of trust requires that the perpetrator be a person "handling affairs for others" and have the intent to obtain illegal benefits for himself or a third party or to harm his own interests, and further commit acts that violate his duties, causing damage to his own property or other interests; the current statutory penalty is imprisonment for up to five years, detention, or a fine of up to 500,000 yuan, or both.

Therefore, when a company has financial problems, we cannot just look at whether "the company has lost a sum of money", but must look back at the original legal and factual relationship between the actor and the property.

II. What situations are close to business misappropriation?

The most typical case is when a person originally legally possesses or manages company property because of their work, but later disposes of it as their own property.

For example, a salesperson who collects 1 million yuan in payment from a customer on behalf of the company should, according to law and in their position, return the money to the company, but instead transfers it into their own account; or a finance staff member who is responsible for safeguarding the company's cash later uses the cash to pay off their own personal debts.

At this point, the focus of the case usually falls on:

Is this money company property? Did the person in question hold or manage it in the course of their job? How was he originally permitted to use it? Did he later transfer company property to his own control or use?

The Supreme Court's recent consensus on lawIt also points out that the core of embezzlement lies in obtaining "individual property", while breach of trust focuses more on the infringement of overall property interests; if the act is essentially the appropriation of other people's property held in business, it should in principle be dealt with as embezzlement, rather than being replaced by the general crime of breach of trust.

Therefore, when a company encounters cases where "employees receive company funds and take them directly", the company will usually first check whether it constitutes embezzlement.

III. What situations are close to breach of trust?

Breach of trust cases often occur in another situation:

The perpetrator may not directly pocket a sum of company funds that were originally held by them, but rather use their authority to handle company affairs to make transactions or decisions that violate their duties, causing losses to the company.

For example, a company manager in charge of procurement may deliberately have a related company under his control sell goods to the company at an obviously unreasonable high price; a director or senior executive may have the authority to dispose of company assets, but sell company assets in a manner that is obviously detrimental to the company in order to benefit a third party; or a person with the authority to decide on payments may arrange for the company to pay funds to a specific related party even though he knows that the company has no such obligation.

If the issue involves the supplier's private interests, please refer to...Handling of Purchasing Managers Receiving Kickbacks from Suppliers.

What these cases really need to investigate is usually not "whether he received that stack of money," but rather:

What was he originally entrusted with? What was the scope of his authority? What did the company expect him to do? Did the actual transaction violate his duties? What benefits did he or a third party gain? What specific damages did the company suffer as a result?

This is why breach of trust cases often involve company bylaws, board resolutions, shareholder meeting information, contracts, quotations, related-party transactions, emails, LINE messages, bank statements, and accounting books, rather than just looking at a single remittance record.

IV. How can we quickly distinguish between breach of trust and embezzlement?

But this is only a preliminary assessment tool. Real cases are rarely this clean.

For example, if a finance manager has the authority to operate the company's online banking system and transfer company deposits to their personal account, this could simultaneously appear to constitute both "violation of company duties" and "appropriation of company assets." In such cases, further analysis of the individual's ownership of the funds and their actual methods of action is necessary.

The Supreme Court has clearly pointed outBoth embezzlement and breach of trust are based on a certain internal trust relationship, but the crime of embezzlement has the characteristic of obtaining individual property; if the specific facts meet the criteria for embezzlement, it should be handled as embezzlement in principle.

5. Does a company executive taking company money necessarily constitute embezzlement?

uncertain.

Although a company's head can control the company's accounts, company assets remain company assets and are not necessarily the head's personal assets. Therefore, if a company head uses company funds to pay for personal expenses, it may indeed face criminal risks.

However, the case must still be examined in light of the specific facts.

For example, is this money considered salary, shareholder transactions, loans, advances, profit distribution, legitimate compensation, or completely unfounded personal expenses? Did the company approve it? Was there a board or shareholder resolution? How is it recorded in the accounting records? Does the person in charge have an obligation to reimburse it?

Without clarifying this information first, the mere fact that "the company account transferred funds to the person in charge" is usually not enough to directly deduce that a crime has been committed.

This is also one of the biggest differences between corporate criminal cases and general theft cases: behind the same cash flow may be real business transactions, loans, remuneration, advances, or transactions with related parties, and the reasons for the transactions must be investigated together.

VI. If a company makes a mistake in a transaction and ultimately loses money, it does not necessarily mean it has breached its trust.

Another common misconception is that if a company ultimately loses money, it must mean that the decision-makers were dishonest.

That's not how it works.

Business operations inherently involve risks. Investment failures, procurement prices that later prove too high, customers defaulting on payments, unsold products, or even poor business decisions do not necessarily equate to criminal breach of trust.

Breach of trust still requires further assessment to determine whether the perpetrator has committed the act.The legally defined subjective intent, whether it violated its duties, and whether it caused damage to company property or other interests..

Therefore, the most important aspect of corporate criminal cases is often not the outcome after the fact, but rather returning to the time of the transaction:

Why was this decision made? What information was available? Who agreed to it? How was the price determined? What benefits did the company originally expect to gain? Were there any conflicts of interest? Did the actor or any related parties receive any special benefits?

These questions are far more important than the statement "the company ultimately lost 5 million yuan".

7. If company funds are taken, what evidence should be investigated first?

Regardless of whether the final issue involves misappropriation of business, breach of trust, or even fraud, the company should first reconstruct the complete facts.

The most important thing is usually not a screenshot, but comparing bank statements, accounting books, contracts, invoices, payment requests, actual transactions, and internal authorizations.

For example, if the ledger records "consulting fee of 3 million yuan", then we need to check whether the consulting contract exists, what services were actually provided, who approved the payment, whose account the money was finally transferred to, and whether there is a relationship between the payee and the person in charge.

If the customer's payment has not been received by the company, further comparison should be made between the customer's payment receipts, the receiving account, the employee responsible for collection, the invoices, and the company's accounting records.

Truly effective corporate criminal analysis usually involves piecing together the data first and then determining the specific legal relationship involved.

8. The handling methods are completely different when viewed from the company's perspective and when viewed from the defendant's perspective.

If a company discovers that an employee or supervisor is suspected of embezzling funds, the priority is usually to preserve accounting records and cash flow data to prevent the loss of evidence, before determining whether to file a criminal complaint and how to recover the funds. (See reference below.)Company's handling of cases where supervisors or employees are found to have embezzled funds..

However, if a company's head, director, or senior executive receives a notification from the police or district attorney's office, accused of breach of trust by shareholders, the approach is entirely different. In this case, the core issue is usually re-establishing transaction authority, business objectives, decision-making processes, cash flow, and company damages. (See reference...)Handling of cases where company executives are accused of breach of trust.

If the shareholders are outside the company, they cannot obtain the accounting books at all.Shareholders suspect that the person in charge misappropriated company funds.Then, the issues of auditing and obtaining information under corporate law must be addressed first before deciding whether to proceed with further civil or criminal proceedings.

This is why the seemingly simple phrase "the company's money is gone" can actually correspond to entirely different legal strategies.

9. In cases of breach of trust and embezzlement, what do lawyers really need to do?

These types of cases cannot usually be compared solely with Articles 336 and 342 of the Criminal Law.

What's really needed is to reconstruct the entire situation into a complete map of the company's transactions:

Who has the authority to make the decision? Who has the authority to make the payment? Who originally held the funds? Why did the company make the payment? Where did the funds ultimately go? What did the company actually receive? Are there any related parties? What harm did the company actually suffer?

Only after these facts are established can we further determine whether it constitutes embezzlement, breach of trust, fraud, civil debt, corporate governance dispute, or even a crime at all.

Corporate Criminal LawyerIt is necessary to compare the position, ownership relationship, authority, cash flow, and subjective intent one by one; when civil rights between the company and shareholders are involved, this should be done simultaneously from...Corporate commercial disputes and shareholder lawsuitsAssess appropriate procedures.

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