Feeling Suspicious? Time for a CheckupBy Nina Kaufman, Esq.
I was recently contacted by a business owner who felt that he was being cheated by his business partner. He had nothing specific to go on . . . just a gut feeling . . . and there was no paperwork. What could he do to protect his investment?
Whether or not he was actually being cheated, there are important steps that business owners can take to monitor what’s going on in their company.
- Have an open conversation: It may be tough to do if you’re already concerned about being lied to. Depending on the size of your investment and your commitment to the company, you may want to bring in a mediator or someone experienced with coaching people through partnership issues.
- Watch your numbers – -regularly: Engage a qualified accountant to review the financial books and records–the P&L, income statements and cash-flow journals (as well as bank statements, canceled checks, credit card statements, etc.) These should give you an idea of how money is actually being spent in the business. As a business owner, you should be familiar with these financial documents (especially the reports) and review them regularly as a matter of good business “hygiene.”
- Get copies of documents: Obtain a copy of the formation documents for the company that were filed with the secretary of state of your state. Realize, though, that some states don’t require the identities of the owners to be listed on them . . . so don’t get upset if you don’t see your name there.
- Hire counsel to patch up the gaping holes: Engage an attorney who has experience with business owner relations to review the “paperwork” you’re supposed to be provided and to create the shareholder’s (or operating) agreement for the company.
- Consider whether to stay the course. Suspicion breeds mistrust . . . which leads to a contentious and fractured business relationship. If you can’t trust, why would you want to stay in business with this person? If there’s no paperwork yet, and before enmeshing yourself further with an untrustworthy partner, you may want to pull out of the venture altogether, recoup what you can of the investment and take your money elsewhere. This is a thorny area, so let your attorney help you do so as cleanly as possible.
Want to learn more about Kaufman Business Law? This is the video to watch.