Transparency Can Prevent Shareholder Disputes In The Future

Closely held companies and family business, whether the company is a corporation, limited liability companies, or partnerships, can prevent disputes among owners by providing for transparency to owners in the company’s governing documents.  It sounds like common sense, but that is not the advice that a lot of companies receive from their lawyers. 

One way to avoid disputes among the owners is by requiring transparency in the company’s governing documents when the company is formed. The documents can also be amended to provide for transparency in an existing company.  The type of entity formed will determine which document should include the records that the owners are entitled to inspect. For example: if the company is a corporation, the requirement should be in the bylaws; if it is a limited liability company it should be in the operating agreement.

Transparency encourages honesty and good management practices by those in control of the company. It can also protect them from unwarranted accusations. Additionally, articulating which documents owners are entitled to inspect prevent costly, unnecessary legal battles over records.