Aug. 28, 2020 1521

Ineffective business with the partners: reasons and solutions

Partnership – is the profitable forms of financial and management cooperation. However, there is a risk to be involved in ineffective business decisions taking by the partners. The most vulnerable are those business owners who do not actively involved into the company activity.

There are two of the main reasons due to which business may work ineffectively and without income. They are the following:

  • The first reason is bad faith of the partners who are involved into the company management. Fraudulent activity without the investor’s notification could significantly damage company’s market power and financial status.
  • The second reason is other internal and external negative impact to the company. For example, financial and management problems of the company which are the reason of no income.  

There are many instruments which could help the company to overcome critical state. However, it is a huge challenge to define the real reason of the company’s crisis.

Company screening

In both cases of a fraudulent partner’s activity and other business-related difficulties, it is necessary to collect information about the company activity and activity of its business partners. Such information could be received from internal and external sources.

There are the following stages of the preliminary screening when all information is collected from external sources:

1.    Verification of all associated entities. They may include physical and legal entities` relationships among which may influence the results of each other’s activity and the activity of their representatives. Such verification helps to understand whether the aim of the created companies is to decline the indicators of the main company without the investor’s knowledge or not. It helps also to understand whether there are any transfers of the main company funds to personal accounts.

2.    Inspection of the state real estate registries. Such inspection is reasonable when the company has real estates in its assets. It also helps to understand the current status of such assets, and

3.    Whether one of the partners tried to transfer real estate to the other ownership or illegally use it without the investor’s knowledge.

4.    If the company has had the court disputes with the state authority, its inspections helps to receive information about revealed company activity. Investor can receive information about the employee number, money turnover, existence of the company debts, number and volume of money flow, etc. at this stage.

After information received from external sources, it is necessary to provide deeper inspection based on the internal company information. The beneficiary owner of more than 10% of the company, has the right to request company activity information in full. The owner needs to specify the request as much as possible and to include the most detailed and complete list of documents into such request. All received information from the external sources may help to detect the documents which reveal the useful company information. Otherwise, it could be hard to understand what information needs to be examined.

Solutions of crisis in the company

The most likely reason of low productivity of the company is within the internal or external risks the company has encountered if the requested documents and information received from external and internal screening on the due date provides the reasons to trust such information.

If the company is indeed in a crisis situation and the investor’s activity can help to solve it, he should change the role of a passive participant taking more proactive position in corporate governance.

The beneficial owner who wants to take control of the situation can use the following management tools:

  • The General meeting. It is a meeting of the participants who manage the company. During the meeting, the investor may submit specific cases to discuss anti-crisis measures.
  • Establishment of Supervisory Board. It can include both the investor himself and any person whose actions he trusts. The main purpose of Supervisory Board is to monitor the actions of the director of the company. Also, Supervisory Board may consist of a team of experts (more experienced managers) who can strengthen the company's position and lead it out of the crisis.
  • Consolidation of global business development strategies in a corporate agreement. This document specifies the rights and obligations of each of the partners regarding the company’s activities, as well as its tasks and KPI - numeric indicators of activities that help to increase efficiency and effectiveness indicators. Such a document allows following the global strategy, to be flexible regarding current plans, and to avoid unnecessary distrust caused by the changed position of the investor in the business.

The suggested tools allow the beneficial owner to take more active participation in the company processes and optimize company’s ecosystem.

How to deal with faithless partners?

If the investor requests information about the company's activities from partners, and they delay the response time, provide an incomplete set of documents or received information does not match information collected from external sources, you may have encountered dishonesty of your partners. The artificially increased accounts payable, illegal transactions on the property alienation, and other similar facts are additional indicators of the fraud existing.

If the investor understands that the partners “cheating him out of his money”, first, he is advised to freeze the assets (arrest them). This action allows you to secure the assets preventing the potentials assets withdrawn from the business that is possible to be in the closest future. Arrest of the assets can be organized via court.

After the assets are secured, the beneficial owner of the company needs to decide whether to leave the company or stay in it. In the most cases investor cannot optimize the company management without the access to operational activities. In this case it is more appropriate to leave the business.

The calculation of the value of the investor’s share takes place from the moment the beneficial owner submits an application on exit the partnership (the price of share directly depends on the company’s balance of assets). Then, the company has 30 days to calculate the price of this share. The investor may agree or disagree with calculated price (in case of investor’s disagree, he applies to court to decide regarding the price of the share). After the share price is established, the company has 1 year to pay the set money to the investor. If the company does not pay the share price to the investor during the year, the investor has the right to apply to court on collecting his share price with assets or cash. 


Ineffective business is a problem that can be solved in two ways. If information about the company’s activities is hidden from the investor, it will be more appropriate to him to withdraw his share and leave this company.

If the partners acts in a good faith to the investor, but their measures to overcome the crisis are ineffective, the investor may help the business to survive the difficult times being more actively involved in the management of the company.