If You Suspect Your Business Partner is Cheating You, Listen To Your Gut and Seek Legal Advice

When you are a small business owner, your business partner is often the closest person in your life, besides your spouse.  Many would agree that if you suspect your spouse is cheating on you, he or she probably is.  At the least, there is a major problem in the marriage.  The same rule of thumb applies to your business partner – if you suspect that your business partner is somehow cheating you (as opposed to cheating ON you), he probably is.  At the very least, the business relationship is in serious trouble.

One client several years ago exemplified this maxim perfectly.  His business partner ran the day-to-day operations and the finances, while my client was constantly out on the road making sales.  Predictably, each thought HE was the reason for the company’s success.  After years of profitability and large dividends, suddenly there was no money for a year-end distribution.  While my client historically had paid no attention to the expense side, as head of sales he was well aware that revenue had not decreased.  When he started asking questions, he got the runaround.  His suspicion peaked when he realized that his business partner had adopted a practice of making him feel guilty for asking to see the books and records of the company.  “What’s the matter, don’t you trust me?” was the usual response.

When he came to see me, he was unsure if anything was wrong, but knew that something just didn’t feel right.  He recognized that many business owners don’t like to be second-guessed, and no one wants their honesty questioned.  However, there is a huge difference between someone who by nature does not like to be questioned, and someone for whom this is new behavior.

Much like a spouse who suddenly starts staying out late, wearing different underwear, or otherwise changing his or her behavior, a business partner can often be measured the same way.  If there was previously openness, with no resistance to sharing critical information, a sudden change may portend something bad.

If your business partner is suddenly keeping you in the dark and denying you critical information, something may be amiss.  In New Jersey, as a shareholder (or member of an LLC), you have certain rights to see and obtain critical financial information relating to the company.  Even though this right is somewhat limited, there are often ways to get access to more financial information than is set forth in the governing statute.  If you find yourself in the dark, starting by seeing an experienced shareholder dispute attorney about getting you access to financial records.  If you find yourself suspicious enough, and powerless enough, that you feel forced to go see a shareholder dispute attorney, your gut suspicion that something is amiss is probably right.