Minority Shareholders

Thursday, June 28, 2018

Tip 3: Discuss the hard topics before you get started

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.


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Monday, October 30, 2017

Halloween for Private Company Investors: be Very Afraid of Phantom Income

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.


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Tuesday, May 23, 2017

Shareholder Derivative Claims: The Sharp Arrow in the Quiver Still Available to Minority Shareholders In Texas Private Companies

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.


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Tuesday, April 11, 2017

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 grandparents, parents or other family members to provide a buy-out right at the time the company was formed.  Fortunately, all hope is not lost for minority investors who did not obtain a buy-sell agreement before they obtained their stake in the company.  This post explores ways minority investors may secure a buy-sell agreement with majority owners even after the investors acquired their minority ownership interest in the business.


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Tuesday, December 20, 2016

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 as seeking relief under more novel causes of action. 

This is the second in a two part series on significant legal issues that affected private company business owners during 2016.  We consider in this post how the absence of a claim for minority shareholders that would permit them to secure a buyout remedy has resulted in a spike in claims filed against majority owners for breaching the fiduciary duties they owe to their companies, and also caused minority owners to consider other legal remedies to pursue against majority owners.


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Monday, December 12, 2016

A Look Back at 2016 – Legal Issues Affecting Texas Private Company Owners and Investors (Part 1)

A sure sign the year is winding up is the release of A sure sign the year is winding up is the release of TIME magazine’s “Person of the Year” list.  If TIME created a similar list of legal developments impacting owners and investors in private Texas companies this past year, at least two issues would be on it: the adoption of the Defend Trade Secrets Act and the stalemate that continues to exist for minority shareholders who have claims for oppression against majority owners.  The legal restrictions on the oppression claim have spurred an increase in shareholder derivative lawsuits containing allegations that private company officers and directors breached their fiduciary duties to the business.


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Wednesday, September 21, 2016

The Eye of the Beholder: Valuing a Private Company Ownership Interest

Unlike public company stock, which actively trades electronically on national exchanges at published prices, ownership interests in private companies, and minority interests in particular, are often not readily marketable.  As a result, determining the value of an ownership stake in a private business can be a thorny problem.  Business owners and investors who want to determine the value of their ownership interest typically need to retain an independent business valuation expert to conduct a valuation of the company from which they can then calculate the value of the ownership interest at issue. 


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Monday, June 13, 2016

Swimming with the Sharks (Part 1): Attracting Private Equity Investment in Your Business

For years, use of the term shark in a business context referred to unsavory characters such as shady lenders, sketchy lawyers and unscrupulous business people.  More recently, the success of the hit reality TV show “Shark Tank,” has given sharks a Hollywood make-over, and a more positive image.  The Shark Tank show features small business owners as contestants who present their needs for capital to a panel of rich investors (the sharks), including Dallas Mavericks owner Mark Cuban.
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Wednesday, April 27, 2016

Disastrous Business Partners Part 2: Confronting the Highly Dysfunctional Majority Owner

In the National Football League, quarterbacks may receive too much credit when their team wins and too much blame when they lose. It is easier celebrate or criticize the person we consider the face of the franchise.   Perhaps this tendency comes from our experience in business world where the success or failure of a private company often traces to the leadership of its majority owners.

Because the success of a private company is so closely linked to the actions of  the majority owners, minority investors need to be closely attuned to signs of trouble. Just as importantly, minority investors should also have a plan in place if it becomes clear that the majority owners of the business are either irretrievably corrupt or hopelessly inept.


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Tuesday, April 12, 2016

Disastrous Partners: The Problem of Highly Dysfunctional Business Partners Part 1: Majority Owner Strategies In Dealing With Difficult Minority Investors

It feels like a sharp punch to the stomach – a physical reaction to the sudden realization that a longtime business partner’s actions have put the business at risk. This is not a disagreement over differing approaches to business issues. It is a full-blown crisis threatening the company’s continued existence. In these situations, the best option is to secure a prompt business divorce that removes the dysfunctional partner from the company.  But, is that possible, and it not, do other options exist to address the disastrous partner situation?

This Post is the first in a two-part series that considers how to respond effectively to, and ultimately secure a business divorce from, a highly dysfunctional business partner.


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Monday, January 11, 2016

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 remedy for oppressive conduct by majority owners.  Minority owners, however, are still permitted to pursue shareholder derivative lawsuits filed in the name of the company to recover for injuries sustained by the business.


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With offices in Houston and Dallas, Diamond McCarthy LLP assists a variety of clients with their Texas Business Divorce matters throughout Texas, including Austin, San Antonio, Midland, Fort Worth, Galveston, Amarillo, Abilene, and Waco.



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