As addressed in a prior post titled You Want to See My What?!? An Owner’s Right to Inspect Business Records, the co-owners of a closely held business entity generally have the right to periodically inspect the financial and accounting records of the business. When the business relationship between co-owners breaks down, repetitive requests for and provision of these records can create even more animosity. Many times, read-only access may be a solution.
Requests for Records
Non-controlling owners are incentivized to make repeated and sifting requests for the latest financial records of the company. This allows them to keep tabs on their investment and on the controlling owner’s conduct and perhaps also to become enough of a thorn in the side to incentivize the controlling owners to buy them out or make other concessions.
For their part, the owners who control the company and its data may find frequent and cumbersome requests for records to be distracting from the conduct of day-to-day business.
Georgia law contemplates a formal process whereby access to the records is requested in a writing sent by certified mail. Invoking that process is one thing at the start of hostilities. It ensures that all parties have access to historical financial information. But repetitive requests can get cumbersome for both the requester and the provider and make disputes that much harder to resolve.
While perhaps not feasible in every instance, one technology-enabled option to mitigate this dilemma is for management to provide the non-controlling owner online access to the company’s banking and accounting information.
To alleviate concerns about unauthorized withdrawals or transfers from bank accounts or changes to accounting records, such access can be provided on a “read-only” basis. That is, while management has full online access to the company’s accounts, the non-managing owners can view the status of the company’s accounts in real time, but they are unable to access funds or change any of the accounting information.
Most major financial institutions that offer online banking services also allow for read-only access as described above. A handy website identifying many of these institutions and the workings of their read-only access offerings can be found here.
Similarly, QuickBooks and other accounting software also allow for read-only access. More information on how to set that up can be found here. While technology can’t yet force business partners to cooperate, it can reduce the friction involved in providing recurring information about a company’s finances without putting those finances at risk.
If you have additional questions about the rights and obligations of businesses owners to access and share information concerning the finances and the operations of the business, I would be happy to answer them.