Do you remember when you first began your company, and you used to trust your business partner? For many people reading this website, those days unfortunately seem long ago and far away.
When you started things up, you may not have paid close attention to at least some of the details. It may be that while you were focusing on big picture items, not all i’s were dotted, and not all t’s were crossed. Some of those things may be hurting you right now, like the fact that you never negotiated a way for you to sell your shares if you wanted out. But one decision made years ago may be absolutely killing you – not being granted signature authority on the bank accounts.
Many clients come to me and complain that they are afraid that their business partner has been taking too much money out of the company, or that their partner will write himself a huge check if my client complains too loudly about whatever issue he may have. When the client is a minority shareholder and has no role whatsoever in the finances of the company, this may be understandable. But in many cases of even 50/50 shareholders, the other shareholder has made himself the only person with signature authority, and you never had cause to complain. Until now.
If you see yourself in this scenario, it may be too late to have yourself added as a signer without your partner’s consent. If you can obtain consent, that would be an easy and obvious solution; but in that case, you likely wouldn’t even be reading this article. More likely, no consent on this issue is forthcoming, and you foresee a major problem. In such a case, you may not be entirely without a remedy. In order to maintain the status quo, a court may very well be inclined to enter an injunction preventing your fellow shareholder from engaging in certain transactions, especially out-of-the-ordinary withdrawals or payments to himself. There are no guarantees, since all such instances must be analyzed on a case-by-case basis. But, if you are really worried about an improper payment that does not need your signature, it may be better to have an attorney attempt to stop it before it is made, than to attempt to get the money back after the fact.
And if you are setting up a company now, and just want to make sure you do things right, do not give away the right to sign checks unless you really have no choice, or if it simply makes no sense in your particular circumstance for you to be involved in check signing. This often overlooked power should not be ceded lightly.
If you have any questions about this post, or other related matter, please email me at firstname.lastname@example.org.