When Business Partners Abuse Trust and Transparency
Projection is a powerful psychological concept that goes a long way to explaining many of the business dynamics that often exist between business partners. When one partner is honest and trustworthy, he tends to see the world as being filled with generally trustworthy people. So, he tends to be trusting and assume someone being untrustworthy is the exception. When one business partner is, deep down, generally dishonest, he tends to assume others are the same way and often trusts very few people. When in business together, these two personality types can be a toxic combination.
This is not to say, of course, that no one who is skeptical of others can ever be trusted himself. But the partner who trusts no one because he is untrustworthy himself will often take advantage of his business partner’s trusting nature. These psychological concepts describe how it is that a business owner can go years at a time without looking at his own company’s business records, only to learn that his partner has been stealing from him for years. If you are reading this article, chances are you know exactly what I mean, as it may be happening to you.
The best way to inoculate yourself against an untrustworthy business partner, and future business divorce litigation, is simply to remain vigilant, even if that is not normally your nature. It is a rarity that your business partner would ever go into business with you with the intention of stealing from the company in the future, and thus effectively stealing from you. These things usually develop over time.
The pattern is often that Business Partner A comes to feel that he deserves more than Business Partner B, while also realizing that Business Partner B trusts him with the books and rarely checks them himself. Your partner has come to realize over the years that you likely won’t notice if he starts to run some of his personal expenses through the company or starts a competing business without you.
So, don’t ever become that person. Check everything, always.
It does not have to be because you don’t trust your business partner. If you have already created a pattern of not looking at anything, and you now suddenly want to see the books, you do not need to justify your newly discovered vigilance. You are an owner! But you must realize that your specific legal rights may depend on your ownership percentage, and your role in the company. A 50% owner who helps run the business has more rights to see more financial information than a 20% owner who works part-time, or not at all (at least in New Jersey). No matter how small your percentage, though, it is often not a good sign if you are denied access to financial information on a legal technicality. If you have found yourself in a situation where you want more information about your own company but are not quite sure how to go about asking, seek help from an experienced business divorce attorney.
Please do not hesitate to reach out to me at dcroberts@norris-law.com.
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.