Unfortunately, it is not unusual for the owners of a privately held business – whether it be partners of a partnership, members of a limited liability company, or shareholders of a corporation – to become embroiled in conflict over management of the company. This management-investor conflict can, at best, cause substantial disruptions to the operation and profitability of the company, and, at worst, lead to costly lawsuits and possibly dissolution of the enterprise. In either case, both management and investors lose, as do customers, employees and vendors.
Often management-investor conflict stem from poor or even dishonest management decisions that waste the company’s assets, usurp corporate opportunities, and misappropriate company funds or assets. These decisions often enrich management at the expense of the non-managing partners, members or shareholders. These disputes, however, can also arise from poor communications. Management simply fails to keep the non-managing parties in the loop on important decisions about the company’s business.
When investors view managements’ actions or decisions as wrongful, they can and should demand as much information about the company as the law allows investors to review. This includes the company’s books and records, which will provide the investors with a considerable amount of insight on how management is taking care of the company’s assets and protecting against liabilities. Not surprisingly, managements’ response to these types of information requests is frequently slow, partial, ignored, or simply refused. Refusal of these requests only raises suspicions higher, and heightens the investors desire for information about the company and how its assets are being managed.
What can an investor do when her request for the company’s books and records is refused?
If management of the company refuses to grant access to company documents and information, the investors can file a writ of mandate with the superior court that has jurisdiction over the company. Generally, that is the county where the company maintains its corporate headquarters or has significant business operations. A writ of mandate is a pleading that asks the superior court for an order directing the company’s management to provide the partner, member or shareholder with access to the company’s books and records. The writ procedure is authorized under California’s Civil Procedure and Corporations Code. It’s an expedited procedure that can be quickly filed, usually heard by the court within 60 days, and avoids much of the time and expense of filing a full blown lawsuit against the company and its management