My husband is part of a multi member (2 members) LLC for recovery houses. Currently they have one house and 5 or 6 men living there. The rent the other member has been gathering from these men is not being deposited into the business bank account. Is it a requirement that the income be deposited into a business account? If so, is this considered fraud or embezzlement?
Depends on where it is going. If it's being pocketed by the individuals, it's probably embezzlement. If it's simply being spent as fast as it comes in, or faster, it may be entirely normal for that sort of operation.
There should be a set of ledgers, on paper or in a computer, recording exactly when and how money comes in and goes out. That's the first place to look for whether money is actually missing or not... with the awareness that books can be forged, so they need to be scrutinized carefully. This is one reason a periodic audit is desirable.
A friend of mine nearly lost her veterinary practice to a bookkeeper who was embezzling, so it does happen. But it could also be honest incompetence or carelessness. By all means investigate, but what you've said is reason to dig deeper, not (yet?) reason to accuse.
Is it a requirement that the income be deposited into a business account?
The account to be used for the various transactions should be defined by the partners. The designation of a business account is a designation by a bank. The limits on monthly transactions and number of people who can move funds for a business account are different than those for a personal account.
The partners should establish an account that meets their needs regarding number of transactions, and the number of people who can make withdraws.
In general you don't want the partners income and expenses to move through accounts not controlled by the business, it makes it harder to track for accounting and taxes.