A Forensic Accountant and Your Shareholder Dispute

Shareholder disputes happen in all different forms. In the simplest terms, a shareholder dispute is when there is a disagreement among shareholders or between shareholders about how the corporation is being governed or about something else involving the company’s finances, operations, or other relevant handling. Having financial stake in an organization means that disputes of this nature are often contentious and complex, leading to the need for outside counsel to resolve the issue(s) at hand.

While shareholder disputes range in severity and scope, there are some general commonalities when it comes to the types of disagreements that arise. The following are some of the most typical shareholder disputes:

  1. The oppression of minority shareholders
  2. Some type of breach in the shareholder agreement
  3. Fiduciary transgressions
  4. Contribution or compensation differences
  5. Disparity in terms of the company’s direction

Shareholder agreements are typically the best barrier against any kind of shareholder dispute. However, a number of issues may come to light that complicate matters. When this occurs, the first step after hiring a shareholder and partnership litigation attorney is to take a thorough and meticulous look at the books of the company. Records must be assessed and evaluated in great detail in order to determine the facts of the matter.

As such, a forensic accountant is typically brought on in the beginning stages of litigation. Leaning on their expertise, the litigation team will depend on the guidance of the forensic accountant in identifying things like:

  • Fraudulent transactions
  • Any undisclosed liabilities
  • Partners involved in self-dealing

The ability to evaluate and discover fraud early on is critical in shareholder disputes, as it helps to potentially avoid trial and ideally set the stage for a settlement. As the forensic accountant is able to collect, analyze, and consolidate financial information, they can then gather what will become useful evidence, regardless of a court case or non-litigation situation.

In many cases, especially when a partnership dispute occurs, one party may not have control over the corporate books. As a result, a forensic accountant will be able to determine if financial information is being hidden or withheld. This is particularly important when a minority shareholder is involved. The forensic accountant do a deep dive in order to look into things like:

  • Determining if the company is an “S Corp” or “C Corp”
  • Evaluating the equity balance reported on the financial statements
  • Conducting a business valuation
  • Figuring out if the other partners involved have received more in distributions
  • Looking over received distribution throughout the years

No matter what the specific of a shareholder dispute may be, consulting with an experienced forensic accountant is absolutely essential. At Ellrich, Neal, Smith & Stohlman, P.A., our firm’s litigation services department provides professional services to participants in the legal process. These services include forensic accounting, fraud detection and prevention, assistance with discovery matters, consultation, and expert witness testimony.

We provide litigation services in both federal and state courts in a wide variety of cases including brokerage fraud, shareholder disputes, class action litigation, personal injury, marital dissolution, contract claims, business damages, lost profits, business and contract disputes and criminal cases. For more information, please contact our Palm Beach Gardens or Miami offices.