Investing in a business as a shareholder involves taking a degree of risk. Even when the business plan is solid and the current owner has years of experience, there is no guarantee of future profits and a return on the investment.
Shareholders have a right to understand the company’s status and any significant plans for the future. Unfortunately, business owners sometimes withhold information from their shareholders and equal partners. What they choose not to disclose can leave those who have invested in the business worrying about the company’s financial stability and their rights. In scenarios where business owners withhold critical information, shareholders and partners may need to initiate litigation to resolve the issue.
What should an owner disclose?
Business owners generally have a duty to make routine disclosures about the status of the company to shareholders. Any material information related to business management, company operations or asset valuation should be accessible to shareholders and partners if they request those details for a proper purpose.
The failure to provide accurate and thorough information to shareholders is a breach of fiduciary duty. Business owners owe their shareholders and partners a fiduciary duty that requires that they put company stability and profits ahead of their own interests.
A refusal to provide information that allows shareholders to make informed choices about their continuing investment in a company could constitute a breach of that duty that warrants litigation. A successful lawsuit can potentially compel a business owner to release information they previously withheld from shareholders or partners.
Litigation can address self-dealing and embezzlement
In some cases, formally requesting financial documentation with the support of a business litigation attorney can prompt a business owner to make mandatory disclosures. The information they provide may lead to concerns about self-dealing, embezzlement or other attempts to enrich themselves at the expense of the organization.
When financial records paint a picture of executive or owner misconduct, litigation can be a way to hold them responsible. Lawsuits can result in court orders to compensate the business for losses related to self-dealing or embezzlement. There may be other legal remedies available as well, depending on the structure of the business, the nature of the withheld information and the contracts signed by the people involved in the disagreement.
Reviewing concerns about a lack of transparency with a skilled legal team can help frustrated shareholders evaluate their options and assert their legal rights through business litigation.