Most private company investors are not tax experts, but developing a working knowledge of the potential for the business to generate phantom income is critical to avoiding unwelcome, tax consequences. What is phantom income exactly, and why does it matter? This Blog post focuses on answering that question to avoid ghoulish tax surprises...
Category: Minority Shareholders
Despite Dante’s Warning (Abandon Hope), There is Hope for Minority Investors Who Failed to Obtain a Buy-Sell Agreement Before Acquiring Their Interest
Life is all a about second chances. In the business world, minority investors may feel that they are trapped if they failed to obtain a buy-sell agreement before investing and have no contractual right to exit the company. This situation is common in family businesses when the minority owners did not request their...
Brave New World: Minority Shareholders Take the Shackles Off – Looking Back at Private Company Ownership Issues During 2016 (Part 2)
Tis the season to say, out with the old and in with the new. But for minority shareholders with ownership in private Texas companies during 2016, not much changed. Minority shareholders remained without access to a buyout remedy under Texas law, which resulted in minority owners pursuing traditional claims against majority owners, as well...
The New Normal: Shareholder Derivative Lawsuits in Texas – Key Issues in Filing and Prosecuting Derivative Claims
As 2016 begins, the anecdotal evidence indicates that derivative lawsuits filed by private company shareholders in Texas are increasing. This rising tide of shareholder derivative litigation was easy to foresee after the Texas Supreme Court’s Ritchie v. Rupe decision in June 2014 rejecting court-ordered buyouts for shareholder oppression and leaving only receivership as a...
Private Equity Investment 101: All That Glitters Is Not Gold
Majority owners of successful private companies are typically focused on growing their businesses. Maintaining a robust growth rate requires owners to reinvest in their companies, however, which in turn, often creates a need for a capital infusion. When the need for capital to invest in the business exceeds the cash flow that...
Employee Ownership 101: Pitfalls for Employees as Minority Owners in Private Companies
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...
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...
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...