Company founders often wrestle with how to bring their children into the company fold. A shareholder may want his children to become owners, but not all owners should necessarily work in the business. If a first generation owner has more than one child who wants to work in the family business, there are often challenges to overcome. When there are two or more founders, though, and children of multiple different families want to become employees, the challenges are even greater. » Read More
Shareholder dispute litigation, especially among family members, is often about much more than the controversy actually at stake in the litigation. There are often underlying psychological underpinnings for what has led to the lawsuit.
For example, in a recent case, the majority shareholder suddenly cut off his brother, a one-third owner, from all financial information. Despite repeated demands, the majority shareholder simply would not share anything related to the business. » Read More
I have written on this blog several times that termination of employment potentially constitutes shareholder oppression. As written previously, if a court finds that the termination frustrates a shareholder’s reasonably held expectations, then the termination may be deemed oppression, and the oppressed minority shareholder may be afforded the remedy of a buyout. However, what about the flipside of that scenario? It is also often the case that an employee will quit, and the majority owners will assume that they can then buy out the shareholder, even if the shareholders’ agreement does not specifically provide for this situation. » Read More
Many new clients come to me after they have already negotiated their separation from the company – usually shareholders who have agreed to be bought out – and now want me to just “write it up.” Kudos to these clients for at least not attempting to draft the entire agreement themselves. The downside is that these clients often have no idea the harm they may have done to themselves already by negotiating without assistance.» Read More
In the last year or so, I have seen several business owners who are not very happy that New Jersey LLC members now have the same protection from minority oppression that is enjoyed by minority shareholders of corporations. To “protect” against such lawsuits, apparently several attorneys around the state are advising clients to add to Operating Agreements a clause that waives this protection.» Read More
When you started the company, both shareholders holding a fifty percent interest seemed like a good idea at the time. That way, everything was equal. Neither one of you answered to the other. Neither could be “bossed around” by your business partner. But, if you are reading this article after a Google search, you undoubtedly have learned, probably the hard way, of the potential shortcomings of this arrangement.» Read More
One of the most difficult things for a family owned business to do is transition to the next generation. And the more divided ownership becomes, with more members of the successor generation, the harder this is to accomplish.
The first generation is often comprised of Dad, and Dad alone. (Family-owned companies with multiple siblings/cousins as founders face the issues discussed below much faster, and often without time to plan.) When Dad ages, or as he starts to plan for retirement, the Estate Plan kicks in, and the company gets left to multiple children. » Read More
I have previously written on this site about who gets “custody” of the company’s customers in a business divorce. Related to this topic, can employee loyalty become an issue in shareholder divorce litigation?
Many times, it is clear who will remain with the company in the event of shareholder dispute litigation. For example, if a 10% shareholder who has never worked for the company sues for oppression, the suit is not likely to confuse the employees, as it will be viewed as an internal, ownership matter. » Read More
“Why is shareholder dispute litigation so expensive?” is a complaint common to most clients. Actually, it is common to all clients, as I have yet to meet one happy to spend large amounts on legal fees. Many business owners know from experience how expensive commercial litigation can be, so if they find themselves embroiled in a shareholder dispute, the fees that can be spent come as no surprise.» Read More
No matter how many times I write about it, new clients keep coming in who have no signed shareholder agreement. As regular readers of this site well know, a minority shareholder still has protection against wrongful acts based on the New Jersey shareholder oppression statute. However, there are many ways that not having a shareholder agreement could cause a significant problem.» Read More