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Choosing an Accountant? Choose Wisely and You Could Avoid Shareholder Dispute Litigation!

When you find yourself involved in a minority shareholder dispute, whether you are the Company (majority), or the minority owners, the role of the company accountant is often somewhat unclear.  The more experience your company accountant has with dealing with differing shareholder factions, the better.

For example, New Jersey law spells out precisely what financial documents a minority shareholder is absolutely entitled to see, and the list is not terribly long.  However, providing financial records above and beyond what the law requires is one way to avoid shareholder dispute litigation.  (Or to put it another way, failing to provide financial information often leads to such litigation.)

What happens, though, when the minority shareholders ask the accountant for information, the accountant refuses it, but fails to tell the majority shareholders that the information was requested?  Or that the minority owners have become increasingly belligerent about the fact that they have been denied access to financial records?  Most company accountants are very good at what they do, can be tremendous assets, and would never let something like this happen.  However, if they are not used to dealing with small businesses with different ownership factions that need to be “massaged,” trouble can ensue.  At least one recent litigation resulted directly from minority shareholders assuming that the accountant’s denial of  information was directed by the majority faction, when in truth that faction was not even aware of what was going on.

The company accountant also can often be put in the middle of potential litigation, such as when they are specifically instructed not to give financial information to shareholders.  In some cases, when the majority owner is absentee, or semi-retired, he (or she) may find it quite galling that their request for financial documents is rebuffed by the accountant.  However, the accountant follows orders from the officers, not the shareholders.  A majority shareholder may have the power to replace the company president, but he cannot overrule the orders given by the president to a third party, such as the company accountant (or attorney).

The bottom line is, when hiring an accountant for your company, if there are different groups of owners with interests that do not necessarily align at all times, it may be helpful to ask about more than just the accountant’s skills in handling the books and preparing the returns.  Ask for experience – and advice – on keeping all factions satisfied, so that expensive shareholder dispute litigation may be avoided.