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...
Category: Minority Shareholders
Texas Supreme Court Considers How Deep the Rabbit Hole Goes: Can the Shareholder of a Parent Company Bring a “Double Derivative” Action Related to a Corporate Subsidiary?
After the Texas Supreme Court issued a precedent setting series of decisions last June regarding the rights of minority shareholders in private Texas companies, the Court is again set to take up a case involving the rights of private company investors. The Court’s decision will further shape the legal contours of minority shareholder...
The Fat Lady Has Not Yet Sung – Stay Tuned for the Result of Ritchie v. Rupe on Remand – Ms. Rupe May Still Prevail on her Breach of Fiduciary Duty Claim
An important chapter still remains to be written in the Ann Rupe saga: a chapter that could have major import for investors in Texas private companies. As discussed in our previous Posts, Ms. Rupe, a minority shareholder in a private Texas corporation with no contract exit right, was able to obtain...
Remedies Available to Minority Shareholders in Derivative Lawsuits Filed After Ritchie v. Rupe
Minority shareholders in private Texas companies often find themselves in a precarious position if they failed to obtain a contractual right to exit the business -- a "corporate pre-nup" -- at the time of their investment. When minority owners do not secure a buy-sell term or some other type of redemption provision on the...
The Legal Landscape after the Texas Supreme Court’s Rupe (Majority) Decision: “It Was Only a Flesh Wound:” Minority Shareholders Disabled But Not Disarmed
From Monty Python and the Holy Grail - The Black Knight
Arthur: I command you as King of the Britons to stand aside!
Black Knight: I move for no man.
Arthur cuts off the Black Knight’s left arm.
. . .
Black Knight: ‘Tis but a...
Majority Rules – But Not Always With Total Impunity
Private companies are governed as mini-democracies - the majority rules. In Texas, however, majority owners in private businesses do not have total discretion to act as they wish. In fact, when majority owners engage in conduct that unduly benefits themselves, they are likely to find themselves subject to claims in litigation where their conduct...
The “Double Derivative” Conundrum: Who Has the Right to Bring a Derivative Claim Against the Officers of a Privately Held Texas Company
Sometimes what we take for granted is not so clear. It had been axiomatic for years that only shareholders have the right to bring a derivative lawsuit in the name of the company. Yet, the Houston Court of Appeals recently permitted a shareholder (of a parent company) to bring a derivative lawsuit on behalf...
Reboot from 2013: A Look Back at Key Cases of Note in Texas Business Divorce
Over the past year, the suspense has been steadily building in Texas in the Business Divorce arena. Trial and appellate courts throughout the state are grappling with the claim for minority shareholder oppression and the Supreme Court is on now the verge of issuing its first significant opinion considering the shareholder oppression claim in...
A Way Out for Minority Investors in Private Texas Companies
A favorite Willie Nelson song cautions mothers not to let their babies grow up to be cowboys. If Willie had been asked to offer guidance to mothers of investors in private Texas companies, however, he might have changed his lyrics to sing, “Mamas don’t let your babies grow up to be minority shareholders in...