In this video, you get answers to these questions:
- What information must a company share with its owners?
- What is the proper purpose to have when requesting information?
- What are your rights as a business owner?
- What are your obligations if a business owner requests information?
- What are the statutes?
While it may seem like common sense that you have a right to information about your company, a surprising number of majority business owners refuse to give the other owners information about the business.
Minority business owners (those with under 50% ownership interest) have rights to important information about their company.
Under Minnesota law, a minority business owner’s right to company information arises from the fiduciary duties that all owners in a closely held business owe each other as well as rights established by statutes. Here are the more common statutory rights.
The rights of shareholders in Minnesota corporations, including S corporations, are governed by Minnesota Statutes chapter 302A.
As owners of corporations, shareholders are entitled to certain company financial statements under Minnesota Statutes section 302A.463. Shareholders are entitled access or obtain copies of other information about the company including financial records, the share register listing the other shareholders, board meeting minutes, and other corporate documents under Minnesota Statutes section 302A.461. As a minority shareholder, you are entitled to this information ten (10) days after you request it.
Like shareholders, members of an LLC have similar rights to information. Minnesota limited liability companies (LLCs) are governed by Minnesota Statutes chapter 322C.
In general, an LLC owner is entitled to any information concerning the company’s activities, financial condition, and other circumstances that the company knows and is material to the proper exercise of the LLC owner’s rights. See Minnesota Statutes section 322C.0410.
Partners in Minnesota have similar rights. Minnesota partnerships are governed in part by the Minnesota Uniform Partnership Act of 1994. For example, partners are entitled to inspect books and records kept by the partnership, information concerning the partnership’s business and affairs, and any other information reasonably concerning the partnership’s business and affairs under Minnesota Statutes section 323A.0403.
These are just a few of the important statutes that protect business owners who own a minority percentage of a closely held company.
This area of law is fascinating because, although it is relatively complex, there is a sense of justice when minority shareholders are able to use the law to assert their rights.
What information must a company share with its owners? That’s the question I’m answering today. I’m Aaron Hall, an attorney in Minneapolis, Minnesota, representing business owners. Imagine you are a business owner. Maybe you are a minority owner, which means you own less than 50% of the shares in the company. And whoever’s controlling the company isn’t sharing with you information that you want. What are your rights?
Well, whether it’s a corporation, LLC, or partnership, you have a right to important financial information about the company. I’m not going to go through all the details because it depends on which entity you’re in, but I’ll just tell you, generally speaking, you’re entitled to know who are the other owners, what is their ownership percentage? You’re entitled to a recent copy of financial statements and you are often entitled to all information that is material to the business as long as you’re requesting it for a proper purpose.
All right, let’s break that down. Proper purpose, what is that? Well, you can’t be requesting information to compete with the business or to harm the business. But if you’re trying to figure out what your rights are, and understanding better what’s going on with the business you own, that’s a proper purpose. There is a lot of gray area there, but most cases it’s pretty obvious. If a person is requesting information from a company they own, either they’re doing it because they want to know about something related to their ownership interest of the company, or they’ve got a very wrong purpose for asking for it, harassing the company or competing with the company. So that’s a wrongful purpose, or a proper purpose.
Now let’s talk about what information is material to the company. This is a broad term that lawyers could argue about all day. The simple idea is it can’t be trivial or minuscule information about the company. It has to be information that actually makes a difference that has a significant impact on the value of the company or the future of the company, the success or the failure of the company, that sort of thing. So of course, financial information would be part of that, contact information for other shareholders, et cetera. What is a person entitled to if they’re an owner of the company? Generally speaking, for a privately owned company, for a small business, a business owner’s entitled to all information that is important or material to the business.
Now does that mean you get a copy of the QuickBooks financial information? No, that’s going too far. There’s no reason you need to have all of that detail. I’ve seen that requested before and the company is welcome to push back and say, “No, that’s going too far.” If you can explain to us the purpose that you need it, like for example, you have credible a reason to believe that there is some sort of improper spending, you could perhaps request that, or maybe even negotiate to have a CPA you hire examine that information at the company. Well, if there’s an important enough reason to see some details, you may have a right to that, for example, an allegation of fraud.
But for the most part, that level of detail, all the expenses and how much every customer paid into the business, that’s way too much detail. Typically, you’re entitled to financial reports and big significant information affecting your rights. So this gives you a quick overview of what your rights are as a business owner and what your obligations are if you’re running a company and a business owner requested information. There are, though, specific statutes. In Minnesota, we have them for corporations, LLCs, and partnerships. Most states are similar and these statutes tell you exactly what needs to be provided. In addition to the statute, there may be a common law duty to provide all information that is material to the business. That, though, is something to discuss with your attorney.
As I’ve mentioned on previous videos, please see the description below, if you want more information on this. Specifically, there’s a link to the statutes for Minnesota, so you can see exactly what business owners have a right to, depending on whether you have a corporation, LLC or partnership. Second, there’s a disclaimer below and that mentions that I do these educational videos to help you learn more and identify issues to spot with your attorney.
This is not a replacement for hiring an attorney who can understand your circumstances and apply the law to those circumstances in the jurisdiction where you live. If you’d like to learn more on these types of topics, feel free to subscribe to the channel here and again, see the link in the description below. For more information at aaronhall.com on specific rights of business owners. I’m Aaron Hall, an attorney in Minnesota, representing business owners.