Partner and shareholder dispute accounting

The engagement reconstructs each partner's or shareholder's capital account from formation, or from the earliest point where reliable records exist, through the date the dispute covers, tracing capital contributions, allocated income, distributions, and any loans between the entity and its owners. We separately trace compensation: salary, IRC Section 707(c) payments for services or capital, bonuses, and any perks or personal expenses run through the business, to each individual. We then check those entries against the partnership agreement or operating agreement's actual terms, allocation percentages, distribution priorities, compensation caps, rather than assuming the agreement was followed as written. The final package includes a capital account schedule per owner, a compensation and distribution trace, and a reconciliation schedule showing where each party's claim does or does not match the record.

We begin with a call covering the entity's formation date, the governing agreement, the period in dispute, and which records the engaging party already has access to. From there we build the capital accounts year by year using tax returns, bank statements, and the accounting file, filling gaps with whatever supporting documents exist. Compensation and distributions get traced separately and mapped to each owner. Once the reconstruction is complete, we lay each party's specific claims, from a demand letter, a complaint, or informal conversation, alongside the books and mark where they reconcile and where they diverge. A senior reviewer reviews the full schedule set before it goes to counsel.

Partners or shareholders heading toward a buyout negotiation, a dissolution, or litigation who need the financial picture settled before positions harden further. It is for attorneys representing one side who need accounting schedules that will hold up if the other side challenges them, and for mediators who need a neutral starting document both parties can work from rather than two competing spreadsheets. It also fits businesses where one owner is exiting and the buyout price depends on an accurate capital account balance rather than a rough estimate either side proposes.

The most frequent issue is a capital account that was never updated after the first year or two, so nobody has a current, reliable balance for any owner. Another is compensation that drifted from what the operating agreement specifies, a managing partner who started taking a salary the agreement never authorized, without anyone formally amending the document. We also regularly find personal expenses run through the business account and never reclassified against the responsible partner's capital account, which distorts everyone's real economic position. A fourth is distributions made unevenly across partners without a documented basis, leaving no clean record of why one owner received more than their ownership percentage would suggest.

We work from whatever platform the entity's books live in, most often QuickBooks Online, Xero, or NetSuite for larger multi-entity structures, pulling the general ledger detail rather than relying on year-end summaries. Microsoft Excel is where the capital account schedules and reconciliations are built, since each owner's account needs a transparent, auditable roll-forward from year to year. Where tax returns are the only reliable historical source, we work from the Schedule K-1s and the entity return itself to rebuild allocations for years the accounting file does not fully cover. Bank statements fill gaps where the accounting file's categorization cannot be trusted for the period in question.

This is a custom Scale-tier engagement, quoted after a call covering the entity's history, the number of years and owners involved, and how complete the existing records are. A dispute with a well-maintained accounting file and a short window at issue costs meaningfully less than a reconstruction spanning a decade with an operating agreement that has been informally amended multiple times without documentation. Reference the standard tiers at /us/pricing for context on our recurring bookkeeping work; this engagement is scoped and billed separately from those.

Every balance on a capital account schedule traces to a specific contribution, allocation, or distribution entry, not an assumed roll-forward. We check the governing agreement's actual language against every allocation and compensation decision rather than assuming standard practice was followed, since the terms parties actually signed frequently differ from what either side remembers agreeing to. A senior reviewer reconstructs the accounts and reviews the reconciliation against both parties' claims before delivery, specifically checking that the schedule presents what the books show rather than favoring the engaging party's position.

It is common for one partner to control the entity's books while the dispute is active, which limits what the other party can obtain directly. We build the reconstruction from whatever the engaging party can lawfully access, tax returns, bank statements the entity shared historically, K-1s, prior accountant work papers, and note clearly where a gap in access limits a specific conclusion rather than filling it with an estimate presented as fact. Counsel can then use that documented gap to pursue formal discovery for the missing pieces, with the reconstruction already showing exactly what is needed and why it matters to the final numbers.