Corporations can be complex entities.
While setting up a corporation is relatively easy, having “too many cooks in the kitchen”, so to speak, can create disagreements and heated arguments.
Whether disputes arise due to the shareholders’ vested interest in the company, or a proverbial “hot head”, dealing with these disputes can be lengthy and costly.
With the help of our certified accountants, Liu & Associates can help you navigate these disputes by gathering pertinent information regarding your corporation.
Keep reading to learn more about how shareholder disputes are resolved and how an accountant can help:
What Happens When Shareholder Disputes Arise?
Most businesses in Canada have one or more owners or shareholders.
Because shareholders hold a stake in the company, disputes among shareholders and business owners can lead to considerable disagreement and complicated litigation.
This means that a corporation can file taxes, borrow or lend money and can sue and be sued.
Shareholder disputes arise when the owners and managers of a business argum among themselves.
Shareholders and owners have the final say when it comes to making decisions that will affect the business.
The rights of the shareholder include the right to vote at shareholders’ meetings, the right to attend these meetings and the right to all information regarding the affairs of the corporation.
When these rights are not respected, a shareholder can sue the shareholders or owners who failed to respect them.
Most shareholder disputes must be resolved through arbitration instead of by the courts.
The process can be messy and expensive, requiring the support of a lawyer or litigator.
However, accountants can be highly beneficial in resolving these situations as well.
How Can an Accountant Help During a Shareholder Dispute?
During a shareholder dispute, accountants can act as either a receiver or inspector.
Receivers and Inspectors
As a receiver, the accountants are put in charge of the stakeholders’ interests by taking possession of the assets in a dispute.
Receivers can also conduct an auction between disputing shareholders which results in one shareholder buying the other out. They can also sell or liquidate the business and divide the proceeds to the respective stakeholders.
As an inspector, the accountant’s job is to gather information and report the discovered facts. This can include examining financial records, gathering information from officers and employees about the company’s affairs and completing a business valuation.
Business valuations are conducted by the accountant during a shareholder dispute to determine how much the shares are worth so that a sale can be facilitated.
This is a complex process that requires a solid understanding of a host of valuation principles and application.
Income Tax Returns
Most income tax returns define shareholder equity and its changes for each year.
However, even if this is not reflected on the return, having an accountant review the income and expense information is helpful and can identify situations where returns don’t match up.
Oftentimes an innocent oversight, this issue can sometimes be a deliberate omission and having this knowledge is useful during litigation.
Quarterly or monthly financial statements should be reviewed to identify any discrepancies between the records and income tax returns.
A qualified and professional accountant can review these documents to ensure there is no deliberate wrongdoing.
Mitigate Shareholder Disputes with Liu & Associates
Our accounting firm can quickly put together a team of experts to analyze taxes and business valuation, as well as use forensic accounting, to help you with your shareholder dispute.
When it comes to legal issues and litigation, a company’s worst enemy is being unprepared.
Trust our staff of professional accountants at Liu & Associates to provide you with our comprehensive understanding and investigative abilities to help you mitigate shareholder disputes.