Disputes can arise between business partners or shareholders for a variety of reasons. They may be caused by simple misunderstandings or miscommunication. They may also occur when partners and shareholders have varying incentives, interests or motivations when difficult decisions must be made. Often, disputes will escalate if they are not resolved in a timely fashion, and when all attempts to resolve the situation are deemed to be futile. Claims of shareholder oppression, breach of contract, financial mismanagement or embezzlement may be made.
A forensic accountant can assist in resolving partnership or shareholder disputes by:
- Investigating allegations of wrongdoing
- Providing other litigation and dispute resolution support
Childhood friends Paul and Peter decided to go into business together, –they set up a limited company-, ‘NewCo’, where they were both registered as Directors and equal shareholders.
During the first five years that ‘NewCo’ was operational, the profits were sizeable, and the friendship did not seem to be hindering their ability to work effectively together. Recently, however, they were not in agreement in regards to the future strategy of NewCo. In addition, Peter felt that Paul was not fulfilling his obligations, and that the successes of the business could be attributed almost completely to his hard work and dedication. It appeared as though the partnership had become fractured and was no longer sustainable.
Peter and Paul were not in a position to unilaterally take action because neither could dismiss the other. Moreover, due to the fact that they were 50/50 shareholders, one could not vote the other out. They had no recourse other than to resolve the stalemate by agreement.
To facilitate and amicable arrangement, Peter and Paul opted to hire a forensic accountant. The forensic accountant reviewed NewCo’s financial statements and contracts, interviewed both parties, and verified all assets held by the company, liabilities, income and expenses.
As a result of the work the forensic accountant conducted, Peter and Paul were able to agree on the specific terms of the agreement whereby Peter would buyout Paul’s shares in NewCo, and the subsequent resignation of Paul as Director. The terms of the agreement included a structure for the payment of the shares, and the parameters under which the Paul (the exiting Director) would be able to establish another business.
Relevant Evidence:
- Contracts and other relevant company agreements or documents
- Financial records
- Interviews