One of the most common complaints from the investors and minority shareholders of closely-held businesses is a lack of clear communication from those shareholders who operate the business. The easiest way to prevent strife is to provide access to what is going on with the company to those who have invested money and provided expertise, although they may not be involved in day-to-day operations.
Keep in mind that shareholders have no statutory duty to keep company information confidential. To alleviate concerns that material will be used in a competitive manner, consider requiring shareholders to be bound by confidentiality and non-compete agreements that will hold them accountable. Also, using an easy yet secure way to communicate with all of the shareholders may include an electronic document sharing system that provides encrypted communications rather than email that can be compromised.
There may be good reasons to not provide specific and detailed information that is routinely handled by officers or management, but it should not be unnecessarily withheld, particularly when the minority owners have a legal right to company information, such as annual financial reports. Many times, minority shareholder oppression claims can be averted by simply providing the requested material, but as a matter of course, feelings of distrust and resentment can be prevented by having a routine schedule where minority shareholders are provided updates supported by certain documentation.
If you have questions about how to handle the sharing of information, call our office at (248) 477-6300.