Attorney Stephanie Schaeffer advises against “lazy” financial practices among managing members of multiple companies.
Since joining BLSW earlier this year, I have worked several matters regarding business member disputes. Some of these disputes could have easily been resolved if the parties had documented their financial action or if they had documented the “deal” they had regarding purchasing membership interest.
Still another common factor for disagreement occurred when members insisted on using one successful company as the piggy bank for another failing company.
As a general rule, I can tell you that over time neither of these “lazy” practices will produce favorable outcomes.
Tips for 2021 for managing members of multiple companies.
There are many reasons why you may need to share expenses, costs or income between your companies. However, great care should be done in doing this and document all transactions. Being able to report to your other shareholders/members exactly how the expenses have been paid and where the revenue has gone is crucial to avoiding any claims for breach of your fiduciary duty.
A fiduciary duty is a type of law applied to individuals who act on behalf of and in the best interests of someone or something else. In terms of businesses and corporations, a fiduciary duty is an obligation to act in good faith, with the care of a reasonable person in a similar position and the belief that their decisions are in the best interests of the company and its shareholders/members.
Putting in the extra work to document your decisions may mean a little extra work in the short term, but if you and the other members ever part ways it will be well worth it. When disputes arise about money, you will be in a situation to provide a detailed accounting to the other members and reach early resolutions rather than protracted litigation.
Are you guilty of “lazy” financial practices among your companies? Do you need some help figuring out how to correctly document financial transactions? Contact Business Law Southwest today and schedule a time to review the financial documentation associated with your companies.