Tough economic times can sometimes be used by one’s unscrupulous business partner to mask his fraudulent activities. In times like these, minority owners who suspect improper activity by the majority should be more vigilant than ever.
Often minority shareholders, especially those not intimately involved in the business, simply get used to receiving little financial information about the company. The attitude often is, there’s no cause for alarm as long as the dividend checks keep coming. If you are being paid a dividend, or receiving some other form of payment or benefit from the company, it’s all too easy to fall into the trap of not paying close attention to the company’s finances.
In normal economic times, a sudden lack of revenue would likely arouse suspicion on the part of a minority owner. What happened to my dividend check? Why is it smaller, or worse, why did it stop? Where has all the money suddenly gone? Is my partner skimming off the top? Gambling it away? There is no easy explanation for a majority shareholder to fall back on in such a case, and any sudden change in the company’s financial behavior would likely be noticed and placed under a microscope.
However, in an economic downturn such as the one we are experiencing now, the majority has a built-in excuse – business is down and “things are tough all over.” While this may, in fact, be true, a downturn such as today’s makes minority owners especially vulnerable. You know business is down, but by how much? If business is really down 20%, but your partner (whom you haven’t really trusted in years anyway) tells you business is down 40%, would you ever learn the truth?
Many people find it hard to believe that anyone, including their business partner, would do such a thing; but it happens all the time. If you are reading this, chances are you already distrust your business partner and have been having some suspicions about him for some time. If he is already “ripping you off,” or at least wishing he could, and if he has any business acumen at all, he just may realize the opportunity that an economic slowdown presents to him to make sure that the pain is shared disproportionately, with you bearing the brunt.
The way to protect yourself from being taken advantage by your own partner in a recession is to be more proactive. Now is not the time to be one of those minority owners who sits back and does nothing when the majority shareholders fail – once again – to provide you with financial information. In fact, now is the time to demand more data than ever before. Although minority owners are not entitled to see every single one of the company’s books and records, an attorney who practices in this area of law can guide you regarding which records you have an entitlement to see. The maxim “knowledge is power” could not be more true in times like these.