Archive for August, 2010
You are involved in a dispute with your business partner, and your every instinct is telling you that, as a minority shareholder (or member, if an LLC), you are being treated unfairly by the majority. Dividends are non-existent, you are not being notified of critical meetings, and the money that you know the company is making seems to be unaccounted for. Yet, when you ask questions, and want to see some financial records, the majority shareholders keep giving you the same excuse – the lawyer (or even the accountant) says “we can’t give that information to you.”
Hiding behind the professionals is a tried-and-true method for many small, closely held businesses to take advantage of minority owners they’re trying to oppress. It is true that lawyers and accountants work for the company, and not the individual shareholders. Because of this, the professional does not necessarily have to respond to requests for information from minority shareholders, even when the business partners are fighting. When a one-third shareholder asks the corporate accountant for copies of the general ledger, the request can be denied. But that does not mean that the professionals are “calling the shots.”
When an expense is questioned as a legitimate business expense – like the “business trip” the majority shareholder took with his entire family – those in control will often say that the accountant approved it. Or, when a minority shareholder questions why large bonuses were paid to the controlling shareholders in lieu of dividends to be shared by all shareholders, the answer is often that the corporate attorney instructed them to structure it this way.
Of course, corporate counsel and accountants often have much sway in such closely held businesses, especially when the controlling shareholders are less sophisticated in business matters. But don’t be fooled; the owners tell the professionals what to do, not the other way around. If your business partner is responding to your legitimate business concerns with “my lawyer made me do it,” it is overwhelmingly likely that you are not being leveled with.