It is hard to imagine that a new business can succeed if business partners do not trust each other. But a business partner who insists that “trust” means staying in the dark about company finances is waving a major red flag.
Trust your business partner
Of course, when starting a business, it is essential that the owners trust each other. And it usually is, at least initially. It’s hard to understand how the challenges of starting a business can be overcome when business owners distrust each other from day one. But habits are formed early. When the majority owner – the one in control – makes it clear that they don’t want you to “watch” them and accept them, this pattern can be hard to break in years to come.
As a New Jersey minority shareholder, you have the statutory right to see limited financial records, including financial statements and tax returns. Any majority owner who refuses to give you access to at least this documentation demonstrates not only that they may be hiding something, but that they are also breaking the law.
Often, however, there is no real reason not to give minority owners much wider 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 getting out of the business in the form of salary, bonuses, distributions and, well of course, “reimbursed expenses”. .” A minority owner never bothered to look, but when he finally did, he found that almost all of his business partner’s living expenses were paid for by the company, including his mortgage! Unsurprisingly, a business divorce dispute ensued.
Options for the minority shareholder
If you are a true partner in the business, it is not unreasonable for you to demand full disclosure and unrestricted access to information from day one. If you haven’t already and are now reluctant 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 really was nothing to hide. Or you may run the risk of being exploited and oppressed as a minority shareholder and have this behavior continue for years.
If your partner is really pissed off because you’re now looking for information, they’re either hiding something or responding in an unreasonable way. Either way, you don’t have to stay in the dark just so you don’t offend someone else. You might find that you wish you had watched a long time ago.
©2022 Norris McLaughlin PA, All Rights ReservedNational Law Review, Volume XII, Number 59