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 signs of shareholder oppression?
What Are the Signs of Shareholder Oppression?
Shareholder oppression occurs when a business partner or majority shareholder engages in unfair or illegal practices to disadvantage other shareholders. Common signs include:
- Restricted Access to Financial Records – Being denied access to company books or financial documents.
- Unequal Profit Distribution – One shareholder taking excessive dividends, salaries, or benefits.
- Exclusion from Decision-Making – Important business choices being made without your input.
- Unfair Stock Manipulation – Changes in share value or redemption plans that disproportionately benefit certain shareholders.
- Misuse of Company Assets – Using business funds for personal expenses or unrelated ventures.
- Freezing Out Employees or Shareholders – Being locked out of company emails, offices, or operations.
If you’re experiencing any of these issues, you may be facing shareholder oppression and should seek legal counsel.
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.
If you suspect your business partner is acting unfairly or engaging in shareholder oppression, you have legal rights. The Miller Law Firm has extensive experience protecting business owners and shareholders from unfair treatment. Contact us today.