Our minority investor clients hold valuable stakes in private companies, including corporations, LLCs and limited partnerships. These investors retain us when their rights as minority owners are being disregarded or when they have been harmed by the actions of the company’s majority (controlling) owners, who are the company’s officers, directors and/or general partners. We work together with our minority investor clients to develop a highly customized legal plan, which we then promptly implement to achieve the client’s business objectives in a cost-effective manner. We handle matters for our investor clients under hourly, mixed or hybrid fee and full contingent fee arrangements.
Based on years of experience, we offer minority business investor representation in Dallas that takes place in different stages that are summarized below.
Early Case Assessment
The first step we undertake for all of our minority investor clients is to analyze the governance documents that apply to the client’s ownership interest, including the bylaws, operating agreement or limited partnership agreement. We refer to this as our Early Case Assessment (“ECA”). The purpose of the ECA is to determine: (1) what rules have been established to govern the client as an investor in the business, (2) what legal rights does the client have under the company’s governance documents and case law; and (3) what is the company’s current financial and operational status.
This ECA enables us to determine, for example, the extent of the client’s rights to secure access to the company’s financial books and records, whether the client has exit rights, e.g., a redemption right from the company or other shareholder or some type of a buy/sell agreement, and if the client has exit rights, how the client’s minority interest will be valued at the time it is redeemed or transferred. As part of the ECA process, we often request the company to provide the client with books and records that we evaluate on a preliminary basis to assess questionable transactions by the majority owners, the current financial performance of the business, and the value of the client’s stake in the company.
Presenting Claims/Negating Buyout
After completing the ECA, the next phase is to enforce the client’s rights. This can take several different forms. In some instances, this involves negotiating a buyout of the client’s minority position on favorable terms to avoid application of steep discounts to the value of the minority interest. In other cases in which the majority has improperly exploited its control of the business, we will present demands on behalf of the minority investors to the majority owners based on claims for breach of fiduciary duties (among others). The goal is to reach a resolution of these claims against the majority owners, if possible, without resorting to the time and expense of litigation. In some instances, the majority owners prefer to resolve claims by minority investors in a reasonable manner that will avoid a public airing of the minority’s claims in litigation.
Litigation of Minority Claims
We prosecute minority investor’s claims in lawsuits against majority owners who act in a manner that violates their fiduciary duties as officers, directors and/or as general partners and which causes harm to the company. Quite often, these claims will need to be filed by the investor in a derivative capacity, which is commonly known as a shareholder derivative lawsuit. In these claims, we file and prosecute these claims for the investor in the name of the company.
Texas statutes contain favorable provisions for minority shareholders in closely held private companies who pursue claims in a derivative lawsuit. As a brief summary, these statutes authorize derivative lawsuits to be filed without the burden of procedural restrictions that apply to shareholders in public companies or in larger private firms. In addition, the statutes permit (in appropriate circumstances as determined by the court) for the recovery obtained in the derivative lawsuit to be paid directly to the shareholder(s) who achieved success in bringing the lawsuit.
If you have any questions about the firm’s representation of minority investors or would like any additional information related to your rights as a minority investor, please contact Jason Fulton, our partner heading 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 minority owners are listed here.