The CPA Said So: When “Professional Advice” Becomes Owner Conflict

Be careful what you agree to with your business partner at the outset, because it can be extremely difficult to go back on what you have decided.

One recent example is when the parties agreed that one 50/50 business partner would run the finances and operations, and the other would be in charge of sales. This division of labor might have worked but for the fact that running the finances included retaining the accountant. Many times, an accountant can truly help, but the wrong accountant can become a major problem – especially for a small company.

In one company that found itself involved in shareholder dispute litigation, the shareholder in charge of finance gave more and more power to the accountant. It got to the point that the accountant was going beyond accounting services – far beyond – and actually making business decisions on behalf of the company. Of course, there may be no issue with this if both partners were on board with the decisions being made. But when the accountant makes decisions that are not – at least in the view of one owner - in the best interests of the company, it can become a major problem.

When personal expenses are run through the company, and tax deductions are taken for them, it is bad enough when the accountant allows this. But when it is the accountant that suggests it, the problem is compounded.

Moreover, when the accountant starts making the decisions, it can be viewed as an abdication of responsibility by your business partner – regardless of the quality of those decisions. “We are paying you to make financial decisions, but you rely on the accountant for everything. And then we have to pay him hourly, too!”

This is not a knock on accountants. They can be a major resource to a small business owner and often serve a critical – even irreplaceable – function. But if there is friction between your business partner and the accountant you have chosen – for whatever reason – then there is a risk that this friction will transfer itself to the relationship between you and your business partner.

In one case the accountant became the impetus for shareholder dispute litigation when he told the majority owner that the minority owner was “not doing his job.” The accountant in reality had no idea what the minority owner was doing, and his opinion was not grounded in fact. But the majority owner believed him. The fact that the majority owner chose to believe the word of an accountant who had no formal role in the operations of the company, and who had no actual foundation for his opinion, was the proverbial last straw for the minority owner. The litigation lasted two years and cost both sides a small fortune.

Whether it is an accountant or any other professional, placing too much trust – or even responsibility – with any outsider (non-owner) can be perceived negatively by your business partner. It can even be seen as a form of betrayal. An attorney who handles business divorce litigation can be a valuable discussion partner when the goal is keeping the relationship between the partners sound.

Please do not hesitate to reach out to me at dcroberts@norris-law.com to discuss your rights as a minority shareholder.

About the Author – Business Divorce in NJ

David C. Roberts, Chair of the firm, concentrates on 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.