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Assume a small internet based service company that rarely has physical contact with customers, vendor, partners, etc (once in two years with no reason to see that trend changing). Less than 10 employees, less than a million in revenue a year. The CEO and majority equity owner buys a $5k golf club membership and does not disclose that to any employees or other shareholders. It's obvious that this will be for the CEO's personal use and possibly hosting an external company once every two years. Company also depends on credit during seasonal drops in revenue that are clearly known. Is this unethical, inappropriate, illegal? How should I view the future of this company, especially if this is a growing pattern.

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  • Did the CEO spend those 5k from company allocated money or his private savings? – jwsc Feb 21 '16 at 12:59
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    Why all the vitriol? You have asked two very sour questions about your current employer. When employer-employee relations sour, it is time to move on. – David Hammen Feb 21 '16 at 16:31
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    privately-held companies are under no obligation to make a profit and are free to spend money however they please - to make money, to make someone happy, to look good, to prop up their nephews failing golf club, etc. I can't imagine how you know it wasn't disclosed - the cost has to be on the books - but unless you're a shareholder it's literally none of your business. If you think your employment might evaporate over a $5000 a year expense, or you think this self-indulgence means your CEO is a lying cheat, by all means look for another job. – Kate Gregory Feb 21 '16 at 18:10
  • @KateGregory: In the UK, a company is allowed to spend money for business related expenses, not for the majority owner's golf club membership. They pay a salary which is taxed and the owner pays out of his taxed salary. Or they give a loan to the owner which he has to pay back. Or they declare it as a company expense, in which case first their accountant and second HMRC (British IRS) will tell them that this isn't going to happen. – gnasher729 Feb 21 '16 at 21:37
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    It's true that they may not be able to deduct it from profit for tax purposes, @gnasher729, and may have to add to the employee's taxable income (my Canadian corporation must make such an addition for me because I drive a company car.) But this is a matter of the corporate tax return, not whether it was ok to write that cheque in the first place. A separate matter. – Kate Gregory Feb 21 '16 at 21:57
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does not disclose that to any employees or other shareholders

I can't imagine why a CEO would be obliged to disclose such an expense to employees. And it's up to the company directors what level of expenditures require board approval.

Is this unethical, inappropriate, illegal? How should I view the future of this company, especially if this is a growing pattern.

I would characterize this sort of activity as relatively "common".

I don't know if that means it's unethical or inappropriate. You yourself stated that it could result in "possibly hosting an external company once every two years". That could easily be a realistic justification.

(As far as if it is illegal, you need to consult an attorney. My guess is that there is nothing at all illegal about it - but I'm not a lawyer.)

How should I view the future of this company, especially if this is a growing pattern.

I wouldn't want to work at a company where I felt the CEO was actually misusing funds. But that's something you would need to decide for yourself.

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    Good points Joe. – user47051 Feb 21 '16 at 16:22
  • To jwsc- company funds. I would also note that as a shareholder, I have never received an invitation to an annual meeting or seen and record of minutes. I believe the board is essentially defunct. As Joe said, I personally view this as a pattern of poor decisions at a minimum and think it's time to move on. – user47051 Feb 21 '16 at 16:25
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    Are you a shareholder? Shareholders, including the majority shareholder, own the company, but they don't own the company's money. If the majority shareholder spends $5,000 of company money for private use then the other shareholders might take him to court for neglecting his duties. If he spends $5,000 for private use without telling other shareholders then they might take him to court for fraud. Consult first an accountant, then a lawyer depending on what the accountant finds. – gnasher729 Feb 21 '16 at 16:36
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Golf courses used to be a major networking opportunity for executives of various companies to get to know each other, and propose deals to each other, informally ... to the point where IBM actually owned a golf course as part of the Poughkeepsie complex. Less so today, but it is not impossible that could be a legitimate marketing expense.

Unless you're the comptroller or an auditor, you probably don't have access to all the facts to evaluate this one way or the other.

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