It’s hard to imagine a new business can succeed if the business partners don’t trust each other. But a business partner who insists “trust” means keeping yourself in the dark about company finances is waving a major red flag.
Trusting Your Business Partner
Of course, when starting a company, it is critical that the owners trust each other. And that is usually the case – at least at the outset. It is hard to fathom how the challenges of starting a business can be overcome when the business owners are suspicious of each other from day one. But habits form early. When the majority owner – the one in control – makes it clear that he does not want you to “check up on him,” and you go along with it, that pattern can be difficult to break in future years.
As a minority shareholder in New Jersey, you have statutory rights to see limited financial documents, including financial statements and tax returns. Any majority owner who refuses to give you access to at least this documentation is not only demonstrating that he may be hiding something, but may be violating the law, as well.
Often, though, there is no real reason not to give minority owners much greater access than this – especially those involved in running the business. The biggest red flag of all is refusing to allow a minority owner access to documents to see how much money the majority owner and his family are taking from the company in the form of salary, bonus, distributions, and, of course, reimbursed “expenses.” One minority owner never bothered to look, but when he finally did, he realized that nearly every expense of his business partner’s life was being paid by the company, including his mortgage! Not surprisingly, business divorce litigation ensued.
Options for Minority Shareholder
If you are a true partner in the business, it is not unreasonable for you to insist on full disclosure and unlimited access to information from day one. If you have not done so, and are now hesitant to “start asking questions” for fear of a negative response, you have a choice to make. You can either run the risk of upsetting and offending your business partner when there truly was nothing to hide. Or you can run the risk that you are being taken advantage of and oppressed as a minority shareholder and that the behavior will continue for years.
If your partner truly gets upset because you are now seeking information, either she is hiding something, or she is responding unreasonably. Either way, you are under no obligation to remain in the dark just so you don’t offend someone else. You just might find that you wish you had looked a long time ago.
©2022 Norris McLaughlin P.A., All Rights ReservedNational Law Review, Volume XII, Number 59