Detecting Shareholder Oppression:
I’m Worried My Business Partner Might Be Acting Unfairly. How Do I Know If I’m Being Shoved Around?
How do you know if your business partner is doing something illegal – and what can you do to stop it? Whether your company is a corporation, an LLC, or a partnership, Michigan law may provide you with some remedies to protect yourself. These protections under Michigan law are usually referred to as shareholder oppression. But what are the warning signs?
What are some of the warning signs?
Every business is unique. But there are some common things that happen when a partner or shareholder tries to take over a company.
Refusing access to the company’s books and records. One important warning sign is if your partner is preventing access to information related to the company’s money, assets, liabilities, or decisions. Shareholders, partners, and members of companies usually have the right to review the company’s books and records. Your partners might be ignoring your requests or even refusing to let you review corporate documents. Times to be especially alert could include when you’re starting the business, when profits are being distributed, or when you’re selling your shares.
Taking more than their fair share of the profit. This could take many different forms:
- The manager of the company might start issuing themselves extra dividends, issuing smaller dividends to you, or even refusing to issue dividends when the company has enough funds.
- The paychecks or benefits of the person in control could start increasing – or yours might start decreasing. This could take many forms, such as new cars or expensive dinners.
- The control person might loan themselves or their other companies money without your permission.
- An unfair stock redemption plan that favors other shareholders could be implemented.
- Manipulating stock or share values to increase the assets of others or decrease yours.
- Not allowing you to participate in capital calls.
Firing or Freezing Out Key Employees – Including You. Have you or people you trust been kicked out of the company? This could happen by taking away your email access, squirreling away files, or literally changing the locks on the doors.
Refusing to Allow Other Shareholders to Participate in the Business. In many cases, co-owners of a company also share in the decision-making process. If you’re no longer being allowed to participate in key decisions, or choices are being made behind your back, it may indicate shareholder oppression.
Using Corporate Funds for Personal Reasons or to Benefit Other Companies. A manager might divert things that rightfully belong to you or the company to themselves. This could include using your company’s assets for personal reasons (like cars, dinners, clubs, or vacations) or using them to benefit other businesses.
Diverting the Company’s Opportunities to Themselves. One of the most common forms of shareholder oppression is diverting corporate opportunities. When a new or old client comes to the company or its managers with a business opportunity, that usually belongs to the company – not the manager. Steering that client to the manager’s personal benefit may be a sign of oppression. Be on the lookout for a partner who starts setting up new businesses or forming alliances with new co-owners.
Contact The Miller Law Firm: https://millerlawpc.com/contact/