Herndon, VA asked in Contracts and Business Law for Virginia

Q: My former business partner refuses to give me the Federal tax returns for the last FY that I was co-owner.

My former business partner bought me out of the business, however I am still a guarantor on a large SBA loan. I am trying to determine the financial health of the company in order to assess my vulnerability, but my former partner refuses to provide P&L reports or to acknowledge that I have a legal right to the full set of financial data. He gives me a summary of the bank accounts and a statement that all loans, rent and utilities are paid each month and says fulfills the requirements of the sales agreement. Do I have any legal rights to demand the standardized reports that were being prepared regularly at the time of the sale as well as the annual tax returns for the last FY that I was an owner? Am I just stuck with not knowing if the company is financially stable until it collapses and the loans are called by the banks? Thank You!

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1 Lawyer Answer
Timothy R Johnson
Timothy R Johnson
  • Berryville, VA
  • Licensed in Virginia

A: The easiest way is to refer to any purchase agreement for the business and see whether there are any terms that can be used for establishing your continuing right to monitor the business's financial health as it relates to the SBA loans. But if the purchase was done via a handshake agreement and cash, it makes things a little tougher.

The next legal document that might confer express rights upon you is the SBA loan itself. If you signed as the guarantor, and your partner did as well an owner o/b/o of the business, sometimes the document establishes an express right for the guarantor to review or inspect financial records of the business. Arguably, even if you were the only signer of the SBA loan (ex: you, personally as guarantor; and you, in official capacity as owner of business), once your partner bought out your interests, you still maintained your interest as the guarantor to review those records of the business. Additionally, some lenders require the guarantor to have access to the financial records, so you would have a right per the loan documents to have access to those books, otherwise, you could sue the business for the right to gain access to them to perform your obligations as a guarantor.

In short, you need to look closely at all the loan and business purchase agreement documents to establish a right to the records. You may also want to consult a business law attorney to consider helping you prepare a letter to your former business partner to express the importance of this issue.

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