On the face of it, the grant of minority ownership interests to key employees in private companies should be a win-win for both emerging companies and also for key employees of the business. The company offers an equity stake to key employees, but pays them modest, below-market compensation to help launch and grow the...
Employee Ownership 101: Pitfalls for Employees as Minority Owners in Private Companies Continue reading…
Valuation 101: The Buck Stops Here—Valuing a Minority Interest in a Private Texas Company With a Contractual Buy-Sell Provision
As we discussed in our post on February 5, 2015, the wise investor recognizes the critical importance of a “corporate prenup” and will therefore insist on securing some form of buy-sell agreement before investing in a limited partnership, limited liability company, or closely held corporation. The buy-sell agreement is a...
When Duty Calls – What It Means to Owe Fiduciary Duties In Managing, Directing or Controlling a Private Company
So You Want to Run a Business—Fiduciary Duties 101
Whether you are a company founder, a corporate officer or director, general or limited partner or simply an investor, if you are involved in a private company, it pays to understand the basics of fiduciary duties. The phrase “fiduciary duty” may conjure up images of a...
Paying the Piper– Under Texas Law, Who Foots the Bill For Shareholder’s Legal Fees In Private Company Litigation?
Who pays the legal fees of private company shareholders when they battle each other in court, often in a fight for control of the business? This is a key question, because the high cost of legal fees is critical, particularly in litigation among shareholders in private, closely-held Texas companies. All shareholders are therefore...
Texas Supreme Court Issues New Opinion Upholding Right of Minority Shareholders to Bring Claims in Derivative Lawsuits
Summer must be here. In June 2014, the Texas Supreme Court issued a long-awaited decision impacting the rights of private company shareholders in Texas. See Ritchie v. Rupe. As summer begins this year, the Supreme Court has again issued a significant opinion regarding the rights held by minority shareholders in private companies. In...
Shareholder Deadlock Part 2- Contract Terms To Consider (Including Buy/Sell Provisions) To Resolve Future Conflicts
Shareholder deadlocks in private companies often result in protracted legal fights to break the impasse that are expensive and also highly disruptive to the business. In some cases, these business conflicts can even lead to the forced dissolution of the company. Just as importantly, these ownership battles are destructive to personal relationships because...
Untying The Gordian Knot: Getting Past Shareholder Deadlock Part 1
“From a relational standpoint, people enter closely-held businesses in the same manner as they enter marriage: optimistically and ill-prepared.”
Charles W. Murdock, The Evolution of Effective Remedies for Minority Shareholders and Its Impact Upon Valuation of Minority Shares, 65 NOTRE DAME L.REV. 425, 425 (1990).
A beautiful wedding ceremony offers no guaranty the couple will not...
A Legislative Fix is Being Considered for the Loss of Minority Shareholder Oppression Claims in Texas – the Antidote to Ritchie v. Rupe.
When the Texas Supreme Court decided last year (in a 6-3 decision) to jettison decades of appellate case law and deprive minority shareholders of the right to bring claims for shareholder oppression against majority owners, the case generated extensive comment, including in our previous Blog Posts. See Ritchie v. Rupe, No. 11-0447, 2014 WL...
Charting the Business Divorce When a Marriage Fails: Who Owns and Controls the Family (LLC) Business?
A married couple may enter into a new business venture as optimistically as they began their marriage. Just as they walked to the altar without a marital prenup, however, they often fail to enter into agreements to provide for what happens to the company if they later divorce. The lack of any...
Phantom Stock is No Myth and Balances the Interests Of Majority Owners and Key Employees in Private Companies
Business owners often desire to incentivize key employees by providing them with an equity stake in the business. These majority owners believe that issuing equity ownership to key employees will instil in them pride of ownership in the firm, create a stronger focus on business goals, and enable the company to achieve higher levels...