Our majority owner clients have worked hard to create and build successful private companies. At formation or later in the business, the majority owner permitted outside investors, family members, friends or longtime employees to also receive a stake in the company. In many instances where the majority owner’s family and friends are minority owners, they did not make a financial investment in the business, and received an ownership interest based on the “sweat equity” they contributed to the company.
We are retained by majority owners when one or more holders of a minority stake in the company become disruptive and threaten the continued success of the company. In these situations, one or more of the company’s minority shareholders are attempting to dictate to the majority owner how the company should be run. We step in at the request of the majority owner to enforce our client’s rights as the controlling owner and to take steps designed to protect our client’s substantial investment in the business they created.
The following summary provides an overview of the type of matters we handle for our majority owner clients.
Defusing Conflicts When Possible
It is not uncommon for the owners of closely-held private companies to develop internal conflicts that jeopardize the company’s performance and even its continued existence. Our role in representing majority owners in these conflicts is to help navigate a course that resolves the conflict among the owners and enables the business to get back on successful, profitable track. Defusing the conflict when possible is generally much better for the company and the business owners than escalating their disputes.
Some of the ways in which we have resolved conflicts among business owners include the following:
- Creating transparency – providing financial reporting to minority owners
- Adding more structure – requiring periodic shareholder meetings to be held that provide minority owner with substantive updates
- Instituting a dividend policy – requiring profit distributions to be made to all owners under a specific formula
When conflicts among the owners of the business cannot be resolved, we work closely with majority owners to structure a buyout of the minority owner’s interest. This option to purchase the minority owner’s interest is only available to the majority owner if: (i) the majority owner has a contract authorizing him to purchase the minority owner’s stock or (ii) the minority owner is willing to sell his stock to the majority owner on a voluntary basis.
Our firm’s experience in negotiating the purchase of minority interests provides a strong benefit to our majority owner clients. We are attuned to critical issues in this process including: the valuation of minority interests in closely-held private businesses, the calculation of discounts that may apply to minority interests and ways in which the purchase of the minority interest can be structured over time. We also work regularly with and have excellent working relationships with top business valuation experts.
Litigation for Majority Owners
We frequently represent majority owners in litigation over claims by and against minority owners. Most often, this litigation involves issues related to: (i) the control over the company, (ii) the manner in which the company is being operated or (iii) the handling of the company’s profits, i.e., whether the profits go to pay officer salary and bonuses or are distributed to the owners on a pro rate basis.
From the first day we are retained, we intently study the terms of all governing documents that apply to the client’s company, and all shareholder agreements. This is the Early Case Assessment (“ECA”) that we apply to the facts of the case. The ECA enables us develop and, with client input, implement a specific action plan for the client that is based on the terms of these governing documents, important facts shared with us by the client and the provisions of applicable law. At all times, we also consider how the litigation with the minority owner may impact the company to avoid actions that would have a negative impact on the company financially or otherwise.
If you have questions about the firm’s representation of majority owners or would like additional information about your rights as a majority owner, please contact Jason Fulton, our partner who heads up the firm’s Business Divorce practice. Jason can be reached at 214-389-5325 or at firstname.lastname@example.org.
Some representative examples of the Business Divorce matters we have handled for majority owners are listed here.