A partner contributes capital and leaves management to their co-partner or an appointed manager, and years pass without their learning anything about the company's true position. They see no financial statements, know nothing of the contracts concluded, and cannot understand why no profits are distributed despite apparent prosperity. When they ask, they are told these are administrative details that do not concern them. That understanding is entirely wrong. A partner's right of inspection and oversight is a substantive right rather than a concession from the manager, guaranteed by Companies Law No. 1 of 2016 and the general rules. This article explains its scope and how it is exercised.
Basis and Scope
- The basis: a partner owns part of the company, and an owner is entitled to know. Management is an agency for the partners rather than an authority independent of them.
- A substantive right: a partner may not be deprived of it, and any provision in the constitutive contract extinguishing it entirely is void, though its exercise may be regulated.
- What it covers: inspection of the commercial books, financial statements, auditor's reports, meeting minutes, and the company's material contracts.
- Its limits: exercised in good faith and without disrupting the business, and not to be used to harm the company or benefit a competitor.
- Confidentiality: the partner must keep what they learn confidential and may not disclose it or use it for their own benefit.
- Professional assistance: a partner may be assisted by an accountant or lawyer in conducting the inspection, which some managers refuse without basis.
Documents Open to Inspection
- Financial statements: the balance sheet, profit and loss account, and accompanying notes.
- Auditor's report: including any qualifications, which are usually its most important element.
- Commercial books: the journal, ledger, and inventory, the foundation on which the statements are built.
- Assembly and board minutes: to identify the decisions taken and their grounds.
- Material contracts: financing agreements, mortgages, and contracts with related parties, the last being the most likely to raise concern.
- Management remuneration: what the manager receives by way of salary, bonuses, and allowances, since it is deducted from the partners' profits.
- Related party transactions: contracts between the company and the manager, their relatives, or companies they own, the focal point of conflicts of interest.
Where Information Is Withheld
What can a partner do if their request is refused?
- Written request: always the first step, a specific request identifying the documents sought with a period for compliance, delivered against a receipt or by a means proving the date.
- Formal notice: where the manager does not comply, formal notice establishes the refusal and grounds what follows.
- Requisitioning a general assembly: partners holding a defined proportion may require the assembly to be convened to consider management's performance.
- Appointing an auditor: the appointment or replacement of an auditor may be sought where the reports produced give rise to concern.
- Judicial expertise: applying to the court for an accounting expert to examine the books and report, the most effective route where information is persistently withheld.
- Accounting claim: where the manager has managed the company's funds without rendering an account, a claim may be brought requiring a documented account.
- Presumption from withholding: a manager's refusal to produce the books is taken as an indication against them within reason, an important point in the partner's favour.
Holding Managers to Account
- Basis of liability: a manager answers for management errors and for breaching the law, the constitutive contract, or assembly resolutions.
- Conflicts of interest: concluding contracts between the company and the manager or connected persons without disclosure and approval is a serious breach.
- Usurping corporate opportunities: a manager taking for themselves a commercial opportunity offered to the company, among the gravest forms of breach.
- Competition: a manager carrying on an activity competing with the company without permission.
- Liability claims: the company may bring them, and a partner may in some cases bring a claim in the company's name where management refuses, known as a derivative action.
- Removal: a manager may be removed as the constitutive contract and the law provide, and judicial removal may be sought on serious grounds.
Practical Guidance
- Do not enter a partnership without providing in the contract for periodic delivery of financial statements and reports.
- Request financial statements annually in writing even where you have no concerns, as periodic requests build a record that assists you later.
- Retain every written request and response, your evidence of withholding.
- Pay attention to related party contracts, the most common means by which a company's funds are depleted.
- Do not sign assembly minutes approving statements you have not examined.
- Where concerns persist, do not wait years, as the passage of time makes reconstructing accounts harder and exposes some claims to limitation.
The right of inspection is what turns a partner from a spectator into an actual owner, and exercising it regularly prevents disputes before they arise. Yamnak Law Firm advises partners on exercising their oversight rights and conducts accounting claims, expert applications, and manager liability claims before the courts.
