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NSW Must Company Share Bank Account Statements with Shareholders?

Discussion in 'Commercial Law Forum' started by cyphix, 28 December 2014.

  1. cyphix

    cyphix Well-Known Member

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    Hello,
    I'm involved in a Pty Ltd company. The company is registered in NSW and has members throughout Australia. I myself am in WA.

    The company is quite lax in sharing bank statements with shareholders that don't have access to the bank account. So I was just wondering, do the company directors have a legal obligation to share bank statements with all shareholders under commercial law in Australia? Like shouldn't they share the bank statements with every shareholder at the start of each month or something? What about on request?

    Thanks!
     
  2. Tim W

    Tim W Lawyer

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    Companies are registered nationally.
    Your location is not something to worry too much about.

    Bank statements are a transactional "working" document, not much different in that sense from a Tax Invoice or a sales pitch document or a petty cash receipt. You may be more interested in the accounts generally.
    While a director might reasonably have access to any business document,
    there is no general duty to share bank statements with shareholders.

    Not necessarily with a shareholder.
    It is a reasonable action for a director to examine the accounts at least monthly.
    But, if you are a mere shareholder, you are not a director.
    So, as a default position, you have no entitlement to see the "working" books.

    These links may be helpful:

    Let me bottom-line you here.
    Looking back over your other posts, you really don't seem to understand the business arrangements you are in.
    And now, you seem to be getting into a situation where you are having (or about to have)
    either a problem getting paid, or some concerns about "where the money is going", or both.

    You would be well advised to seek formal legal advice now,
    before Something Bad Happens.
     
  3. cyphix

    cyphix Well-Known Member

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    Thanks for your response; though that doesn't really appear right!? So a shareholder who puts work and money into a company has no right to see where the money is going? Shouldn't the books be shared / be available to all shareholders for transparency reasons!?

    What's stopping someone doing something dodgy with the money and not telling the other shareholders about it? Director could be in cahoots with anyone else that has access to the books for example and meanwhile the other shareholders are getting screwed because they don't have access to the books - not saying something like that is happening, it's just merely an example.
     
  4. Tim W

    Tim W Lawyer

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    Doesn't it?
    Well, I am confident enough in what I have said, to have said it in front of several dozen other lawyers,
    many of whom are a lot smarter than me.
    Still, I can't make you take my word for it.
    Luckily for you, the links in my earlier post carry more legal weight than anything I might say.

    Being a shareholder is not the same as being a member of an association or a co-operative.
    Members of those kinds of entities have a conditional right to inspect the books.
    That's not necessarily true of the shareholders of a corporation.
    You can make it so, if you build it into the kind of Shareholders Agreement I have suggested to you in an earlier post.

    What stops most people is the very chance of getting caught, and the very big penalties (which can include gaol) that can be applied if they do.

    Lastly...
    You need to get a grip. Where you are in this thing is pretty obvious.
    It will be something like...
    • You have been involved with this business for a while.
    • Your involvement comprises contributing some kind of
      mix of expertise and maybe some IP, and little if any money.
    • There has been work and money flow through the business.
    • You are noticing expenses, and wondering about them.
    • And you are starting to wonder (and maybe even worry a bit)
      about when, or even if, you will get a return on your investment.
    And that's fair enough.

    I get the impression that you are pretty good at your work.
    Do, please, consider the possibility that some of us are pretty good at ours, too.
    That said, if what you read here does not suit your personal vision
    of How Things Must Be, then you are free to remain a thirsty horse.
     
    John R likes this.
  5. cyphix

    cyphix Well-Known Member

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    Hi Tim..... my apologies. I didn't mean to say what you said wasn't correct, I was just trying to imply that it shouldn't be that way (ie; that isn't right) as I believe all shareholders who have a sizable share in any business should be entitled to the same inspection of the books as any other member.

    Apologies once again for the misunderstanding as I do appreciate your advice.

    ...and yes, I do agree with you that we should have a shareholders agreement, at the time of starting the business up I thought the constitution covered all that.

    As you'll understand I don't want to get into too many specifics on an open forum, but I have no problems about getting a return of my investment, all I ask for is transparency within the company.
     
  6. Tracy B

    Tracy B Well-Known Member

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    Hi Cyphix,

    I agree with with @Tim W wrote above:

    1. Shareholders do not have an automatic right to access the company's internal books. The court's rationale for this is that it disrupts the internal management and efficiency of the business if they are constantly bogged down by requests from shareholders to obtain a copy of internal books. It may not seem like a burden for small companies, but remember, this rule covers all companies including multi-billion dollar international companies with many many international shareholders and large amounts of internal accounting to keep track of. If executives are obliged to respond to every one of the requests by shareholders, this would take up a substantial if not nearly all of their time. Further, shareholders vote annually at the general meeting for appointment/continued appointment of directors who then appoint the executives that manage the company. Since they (indirectly) vote for managers, they are supposed to trust the managers. Kind of like how you and I cannot write to the Australian Ministers of Departments and request a copy of parliamentary papers or debate transcripts or treasury books. We are assumed to trust these people, having voted for them, and should we be unsatisfied with their behaviour, we vote them out at the next election.
     
  7. Tracy B

    Tracy B Well-Known Member

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    2. It is definitely recommended to have a shareholders' agreement. Especially in smaller companies where you have direct access with the directors or some influence in how the company is set up, a shareholders' agreement is always recommended in order to protect shareholders, and particularly minority shareholders. A shareholders' agreement is not the same as the company's constitution (or articles). A shareholders' agreement is a contractual agreement between shareholders (investors) and other shareholders/directors and covers: dividend distribution, appointment/removal of directors, issue of new shares, different voting rights, minority protection, transfer of shares etc. If you get into a dispute, you, as a shareholder, can sue the directors under the shareholders' agreement. However, the constitution is slightly different, it does not cover these matters and it is much more difficult to sue under the constitution.
     
  8. cyphix

    cyphix Well-Known Member

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    Thanks for you insight Tracy. I can definitely understand the issue of sharing the books with every shareholder; but I guess I was more thinking that shareholders with at east 5% - 10% stake in the company should have more rights to see the books than others; like I think the bank statements should be sufficient...... not really hard for them to once a month make the latest statement available to all shareholders. But that's just my view anyway.

    As for a shareholder agreement - I would love for one to be drawn up, but I have the feeling if I requested it it would be denied or given a lackadaisical attitude to.
     
  9. Tracy B

    Tracy B Well-Known Member

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    If you have a high stakehold in the company, you can petition the court to order that the company make the books available to you for inspection.

    Good luck with getting that shareholders' agreement. Perhaps it is easier to draft one yourself and ask the company directors to enter into it. That way, when you approach the company directors, you have something to present them. It is not just beneficial for minority shareholders but it is also beneficial for the company. Remember, the directors owe a fiduciary duty to act in the best interests of the company and the shareholders as a whole. You could table it at the next annual general meeting.
     
  10. cyphix

    cyphix Well-Known Member

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    Thanks again Tracy!

    What would you consider a "high stakehold in the company"?
     

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