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As a minority shareholder in a closely held prvt co, how can I push for greater transparency and accountability from the controlling shareholder?

After working together for almost 15 years to build a successful cloud-based business (>50 employees; >$10M annual revenue) my business partner and I agreed that it wasn't working out between us anymore (He owns 52% of the company, I own 33%; he oversaw Ops and Finance, I oversaw Sales, Marketing, Tech). Simply put, he wants to run the company like a lifestyle business (i.e. weak corp gov, minimal transparency among key stakeholders, using company funds to make large asset purchases such as a private jet, running personal expenses through the business, etc.) and I want to run the business a like growth company (i.e. strong corp gov, financial transparency among key stakeholders, raise growth capital, minimize non-business expenses). I offered to sell him…

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Tom Williams, Clarity's top expert on all things startup answered:

Unfortunately, the best answer you can get here is "it depends." On your country and state or province and primarily on the terms of the shareholder agreement / charter and also any documents pertaining to you leaving the company. Your best option is to consult a law firm in your jurisdiction to first review the core documents and then evaluate what your potential avenues are for addressing this.

Best of luck.

Best of luck.

Tony Clark, Lawyer/Entrepreneur/Community Developer answered:

Hello!

Without knowing the specifics of your problem, i.e. what the governing documents state and which state you formed the entity in, I cannot give an absolute answer.

However, I can speak in generalities regarding minority shareholders' rights in closely held entities. In most states, (probably all states actually) minority shareholders have specific rights to review the business records. This means that you have the right to review reasonable records at a reasonable time. Usually, this means that you or any agent (lawyer, accountant, etc.) can review most any record if you provide some kind of reasonable notice.

Legally, a state might have some specific steps that the minority shareholder would have to follow. For instance, you might have to make your demand in writing and you might have to state the purpose of the demand. To comply fully with these requirements you have to talk to a lawyer licensed in your state. However, the answer to your question is that you can demand the transparency by reviewing the books yourself or with an agent. If you have an attorney that represents the business, he/she can probably answer the formality questions for you. However, please remember that the attorney that represents the business does not owe any duty directly to you as a shareholder.

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