Texas Business Dispute Blog

"Would you tell me, please, which way I ought to go from here?"
"That depends a good deal on where you want to get to," said the Cat.
"I don't much care where—" said Alice.
"Then it doesn't matter which way you go," said the Cat.

Lewis Carroll's Alice's Adventures in Wonderland

Tip 4 addresses the most common problem facing minority owners in private Texas businesses: they invest with no plan and no path for exiting their investment. 

THE OLD WAYS DON’T WORK ANYMORE

A little history: Until 2014, if a minority owner in a Texas business was "oppressed" by a majority owner, the minority owner could sue under a Texas statute and a common law cause of action and seek a court ordered buyout of their interest.

This is part 3 in our series of tips for new business ventures and investments. In Tip 1, we discussed the disadvantages of using standard form documents. Tip 2 covered why you need an attorney to represent you individually instead of a single lawyer for the group of investors.

Tip 3 is more practical than legal. If you page through the form documents of your company, you will see pages devoted to topics of little relevance to the practical challenges that can face a new business. You might find two pages devoted to the requirements for properly noticing and conducting an annual meeting of shareholders and perhaps two sentences on what happens if the business needs more capital or faces a dispute among the owners.

This is part 2 in our series of tips for new investments. In part one; we discussed the disadvantages of using standard form documents to govern the new investment or business. Now in tip #2, we are going to talk about the role of attorneys in the process.

The disadvantage of hiring one attorney to represent a group of investors.

Attorneys are supposed to represent the client that hired them and give that client their devotion and loyal advice.

It’s a new year and perhaps a new time for creating a new business venture or investing in a private business opportunity. It’s a complicated decision. If you are putting money into an opportunity you have to analyze and understand the business plan, the management of the company, the marketplace, and your fellow owners. If you plan to put sweat into the business by working as an officer or employee you have to do all those things plus accept the pressure of generating enough money to pay your salary and those of any other employees. Unless you have a lot of experience or invest professionally, what you are not likely to do is spend a lot of time on the documents that form the company and govern its operations.

If you invest in ownership in a Texas corporation, limited liability company ("LLC") or Texas limited partnership ("LP"), and get shut out or suspect some act of mismanagement, the right under the Texas Business Organizations Code to ask for documents is an essential protection.

But until the 2017 Texas legislative session, if the business refused an owner’s demand for documents, only a shareholder in a corporation could seek recovery of attorney's fees and other expenses for having to go to Court to force the entity to turn over documents, while LLC and LP investors had no right to attorney’s fees.

In 2017, the Texas legislature leveled the playing field by amending the Texas Business Organizations Code to allow both LLC members and limited partners to recover attorney's fees when the business refused to give them documents. Given the increasing use of LLC and LPs for newly formed private companies, this is a much-needed protection.

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 appearing after Halloween.

Couples often spend months planning their wedding day details, from the color of the flowers to the icing on the cake.  What they often overlook, however, are the legal rules that will govern their property once they are married.  While the topic lacks romance, couples should seriously consider the benefits of entering into a pre-nuptial agreement, which will impact them, and potentially their children, far beyond their wedding day.

This is the second in a two-part series focusing on pre-marital agreements, or pre-nups. Part 1 considered how a pre-nup can help a couple address a number of crucial financial and personal issues.

Not so long ago, marital pre-nups were viewed as devices solely for use by the rich and famous, who never seemed to stay married for long.  In today’s world, however, couples from all walks of life face a myriad of important financial and personal issues that a pre-nup can help them to address.  Pre-nups can benefit both spouses, including by:

• Preventing costly, drawn out divorce litigation;
• Protecting a spouse’s interests in a business;
• Preserving valuable family assets, real property and heirlooms;
• Assuring the inheritance rights of spouses and children;
• Shielding one spouse or children from creditors; and
• Giving peace of mind to the couple by reducing uncertainty about the impact of major life events in the future.

This is a two-part Post focusing on marital pre-nups.  Part 1 evaluates how a pre-nup can address important critical business and family issues for the couple.

Since 2014, Energy Transfer Partners LP (“ETP”) has been fighting to hold on to the $535 million judgment it obtained that year against Enterprise Products Partners (“Enterprise”).  Our blog post earlier this year analyzed ETP’s efforts to persuade the Dallas Court of Appeals that ETP and Enterprise, two sophisticated companies in the energy industry, had entered into an unwritten partnership agreement, or as Enterprise referred to it on appeal – a partnership by ambush in disregard of the parties’ written agreements.

Looking back on the celebration of Independence Day this week, one of history’s most notable separations, it may be a good time for business partners who are locked in conflict to consider a business divorce.  Unlike the fight to the death between the redcoats and the patriots, however, the focus of a business divorce is how to structure a separation between business partners that achieves a win-win outcome for both sides.

In its simplest terms, a business divorce refers to the process by which the owners of a private business separate from their co-owners.   This Post discusses issues common to most business divorces that will be helpful for business owners to consider before they embark on this process.  The perspective in the Post is from the vantage point of the minority owner seeking to negotiate favorable terms for his/her exit from the business.

Based on our personal experience handling Business Divorce matters for both majority owners and substantial minority investors in private companies, we have learned firsthand that there are two sides to every story and every Business Divorce matter is unique.