[hga]

Agreed that you're not overreacting.

Seriously, this guy has shown himself to be fundamentally dishonest (both for starting this behavior after the rules of the game have been well established over a couple of years and then by neither stopping his theft or repaying as he promised). You're just not going to make things work with this guy and it's a lot broader than him taking money from the company that can't afford it, he's demonstrated that you can't trust him at all.

As philiphodgen says, either you remove him from the company (and don't delay) or you remove yourselves from it and let it die. You've given him the one chance he deserves, now is not the time for half-measures, including any compromise that includes him continuing to work with you in any way.

My father once worked at a very high level for a company where one of the founding partners started helping himself to anything he took a fancy to. The company was very profitable so it's not quite the same thing; getting rid of this partner was intensely painful and expensive (e.g. his demands for immediate cash when it came time for investment limited the options and caused everyone to take a needlessly big tax hit).

One lesson from the above is that if you do become successful the pain and difficulty is only going to be greater. If you were making 10/100/1000 times as much money how much might he be helping himself to? He feels entitled to the money....