Insist on Banking Transaction Visibility if You Don’t Trust Your Own Company’s Books

When a company possesses two sets of books, usually one is for the company, and the other is for the rest of the world, often the IRS. But there are times when the second – or “cooked” – set of books is for the business partner.

Minority owners (in New Jersey, at least) have the right to see certain of the company financial records. However, that right is not always carried out in practice. In fact, being denied the financials, even if you are an owner, is likely the reason you are reading this article. Some owners go far beyond simply refusing to show their business partner the records, and resort to flat-out manipulation of the financials. They could:

• Reflect a false number for salary and bonus.
• Fail to reflect vacations paid for by the company.
• “Misplace” payroll information for a family member on the payroll for a “no show job.”

Obviously, if you are questioning whether the books you are looking at are real, there is a serious trust issue between you and your business partner. The only way to know for sure whether you are seeing genuine numbers is to get them from a third-party source you trust. That could be the accountant or even the bank. If you are a minority owner and ask for online bank access (even if read-only), and you are denied, that may mean there is a significant problem. What possible reason could there be for you not being permitted to look at the bank records? Unless you are operating a business with a significant cash component, there is no way to hide your transactions. They leave a trail. And bank records can be concealed – but not altered. In my experience, there is no real reason not to allow owners to see financial transactions as they occur, and the only owners who take this issue to the mat are the ones who are hiding something.

The business partner relationship is, in some respects, quite similar to a marriage. If you think you have something to worry about, you probably have something to worry about. If you suspect that things are being hidden from you, and the majority owner will not permit you to see trustworthy business records, you should probably trust your gut. If you think there’s a problem, there’s probably a problem. And you should see an attorney versed in business divorce issues.  The lack of transparency usually happens for a reason.

About the Author – Business Divorce in NJ

David C. Roberts, Chair of the firm, specializes in complex commercial litigation, including fraud, trade secrets, and restrictive covenants, with a focus on business partnership and shareholder disputes in New Jersey. Known as business divorce litigation, these disputes often involve shareholder and LLC member oppression, embezzlement, owner freeze-outs, dissenter’s rights, and efforts to dissociate or expel an owner. Dave strives to resolve matters through mediation but is a seasoned trial attorney when needed. He frequently writes and lectures on minority shareholder disputes. With extensive experience representing both minority shareholders seeking buyouts and majority owners defending against such claims, Dave offers unique insight into the strategies and challenges of business disputes, particularly in family-owned companies.