Financial Deceptions that Lead to Shareholder Disputes

When you invest your heart, soul—and especially your money—into your business, you expect your fellow shareholders to do the same. But if a partner mismanages or misappropriates your company finances, they can destroy everything you worked so hard to achieve. In the worst-case scenario, they can even set you up to be criminally liable for their actions.

Although 70 percent of business partnerships eventually fail, the dissolution can be especially contentious when financial misdealings lead to the downfall. That’s why it’s so important to retain the services of a forensic accounting firm in the event of a shareholder dispute to protect your investment and your profits.

How shareholders in your company can violate your trust

As a shareholder, you have a financial duty to act in the best interest of the company, your partners, and your employees. Unfortunately, those in charge of the books often have the opportunity to abuse their position with little to no oversight. There are several instances in which a shareholder can put your partnership at risk:

  • Conducting financial transactions that breach your business agreement without your knowledge
  • Misreporting payroll or income to the Internal Revenue Service
  • Neglecting to pay reasonable distributions to shareholders
  • Misappropriating business funds and assets to cover personal expenses
  • Failing to provide financial and accounting information
  • Mismanaging the company’s financial affairs
  • Committing general fraud or embezzling money

The forensic accountant’s role in defending your business holdings

For minority shareholders or partners in charge of operations rather than the day-to-day financials, it can be challenging to uncover the full impact of a shareholder’s fiscal indiscretions once a dispute is set into motion.

Whether you’re seeking a buyout to gain majority control of your business, dissolving the company altogether, or pursuing restitution for the crimes committed against you financially, your lawyer may partner with a forensic accounting firm that specializes in business litigation.

A forensic accountant can comb through all financial evidence to identify transactions performed on behalf of the company and those performed for the shareholder’s benefit. Through their unbiased interviewing, analysis, and interpretation skills, they can provide the court with the information required to come to a conclusion in the case, including:

  • The valuation of the business and an ownership interest
  • The identification of any mismanagement or misuse of funds
  • The quantification of financial fraud and embezzlement
  • The compensation value for fraudulent actions performed by a shareholder
  • The fair distribution of benefits to shareholders

When someone you trust disregards a fiduciary contract and puts both your personal and professional future at risk, bringing a forensic accountant on board can eliminate the uncertainties that your former business partner can use to their advantage.

Find an investigative forensic accountant

After years of uncovering white-collar fraud for our clients, the forensic accountants at ARA Fraud & Forensic Services know how unscrupulous shareholders can be when using a business’s assets to their advantage. If you are facing a shareholder or partner dispute and suspect another’s actions have undermined your profits, a forensic accountant can work with your legal team to determine any financial transgressions. To learn more, contact us today at 636-346-9273.