Family-owned business shareholders often enter into buy-sell agreements that provide the terms on which an owner can or must sell his or her shares.  Such agreements usually restrict an owner’s ability to sell shares to third parties without first offering them to the company or other shareholders.  Rights of offer are also often specifically triggered upon a shareholder’s death. Finally, these agreements typically spell out the timing and source of the payment by the purchasing company or shareholder. Continue Reading Does Your Family-Owned Business’s Buy-Sell Agreement Restrict Transfers Of Shares By Gift?

Family-owned enterprises often place real estate assets and operating businesses into separate entities, with the real estate company leasing space to the operating company.  In such instances, the owners or managers need to agree upon what rent the operating business will pay to the real estate company.  The rental amount will then affect the funds available for use or distribution at each company level. Without agreement on the proper amount of rent, or without equal ownership and involvement at each company level, disputes can arise as to the fairness of the rent that is charged or paid. Continue Reading Does Your Family-Owned Business’s Lease Reflect An Appropriate Rental Value?

As we move into 2020, there are signs that the M&A market may be slowing down.  Global trade issues, rising prices for target companies, and political uncertainty in the US all may contribute to reduced deal activity in the coming year.  In this type of market, acquirers will take a harder look at potential acquisitions in order to minimize risk. Both strategic and financial buyers will be focused on buying “quality” companies, where potential risks are minimized through good practices of the sellers. Continue Reading 2020 Resolutions to Make Your Deal Go Smoothly

Companies that are considering an M&A transaction should review their insurance policies to determine whether the carrier needs to be notified of the potential transaction.  In some cases, failure to do so can cost the insured the coverage that it was expecting.  In a case out of California (Scottsdale Insurance Co. v. CSC Agility Platform, Inc., C.D. Cal, Feb 4, 2019), the U.S. District Court for the Central District of California held that an insured’s failure to notify its insurer of a pending transaction allowed the insurer to deny coverage when an otherwise covered claim arose. Continue Reading Thinking About Selling? Make Sure to “Contemplate” Notifying Your Insurance Carrier

Very often, tax consequences determine how successful the sale of a business ultimately is.  Owners often focus only on top line price, while structure and tax treatment can make a significant impact on how much of the purchase price the owner ultimately retains.  Asset sales, while attractive to buyers because they allow for a “step up” in the basis of the assets up to the amount of the purchase price (enabling the buyer to take increased depreciation and amortization deductions), often create problems for owners.  Because the seller in an asset sale is typically an entity, the sale proceeds have to pass into the entity and then out to the owners.  This makes the sale proceeds subject to a double tax where the seller is a C corporation, an S corporation with earnings and profits, or an S corporation subject to the built in gains tax.  In addition, certain state taxes, such as the Massachusetts “Sting Tax” may apply, further decreasing the net sale proceeds to the owners. Continue Reading Personal Goodwill: A Tax Saving Opportunity

Many family-owned enterprises do business with the Federal government, either as a contractor or a supplier.  A recent case decided in the Court of Federal Claims serves as a stark reminder that any time a contract with the Federal government is amended or modified, the parties must pay particular attention to any release language contained in the amendment, or they run the risk of releasing potential claims that are unrelated to the modification.   Continue Reading Federal Government Contract Modifications: Pay Attention!

A Minnesota Appeals Court recently ruled that a father could not terminate his son as the president of the family-owned business because the father did not have authority to do so under the company’s by-laws.  Call v. Call, No. A19-0074 (Minn. Ct. App. Sept. 3, 2019).  This case involved a dispute between the owners of a manufacturing company, Winco, Inc., that had been in existence since 1927.  Ralph Call had been Winco’s sole shareholder for decades.  In 2009, Ralph’s son Daniel joined the company with the understanding that Daniel “would eventually own a significant share of Winco.”  By 2017, Daniel owned 65% of Winco’s shares as a result of a series of transfers from Ralph.  Winco’s board of directors also had appointed Daniel president of the company in 2014, while Ralph remained its CEO. Continue Reading When Terminating Officers in the Family-Owned Business, Follow the By-Laws

A forum selection clause is often included in an agreement in order to specify where any later dispute regarding the agreement must be litigated.  In a recent decision, a federal magistrate judge in Ohio denied a defendant’s motion to transfer the venue of a lawsuit from Ohio to California based, in part, on the existence of a forum selection clause identifying Ohio as the venue for any dispute.  See Down-Lite International, Inc. v. Chad Altbaier, No. 1:19cv627, United States District Court, S.D. Ohio, Western Division (August 6, 2019). Continue Reading Should Your Family-Owned Business Include a Forum Selection Clause in its Agreements?

Parties to probate court proceedings involving family-owned business interests held in trusts or estates can agree to arbitrate their disputes instead of proceeding through the court system.  Such agreements could be broadly drafted to include “all disputes” arising from or relating to a decedent’s trusts or estate.  Or they could be narrowly focused to address only limited issues that may arise in the course of trust or estate administration, for example, disputes over the valuation of business interests. In all events, parties should carefully identify and agree upon the scope of the disputes they are agreeing to arbitrate before beginning the arbitration process.  In In re Estate of Richard T. Gordon (Case No. 339296, November 8, 2018), the Court of Appeals of Michigan recently reviewed an award in which the arbitrator divided certain family-owned business interests that previously were held by trusts or estates.  One family member challenged the award on the grounds that it exceeded the scope of the parties’ arbitration agreement. Continue Reading Can the Division of Family-Owned Business Interests Held in Trusts or Estates be Submitted to Arbitration?

Disputes sometimes arise between owners of family-owned businesses. And sometimes those owners say unflattering or insulting things about one another to other family members. When one family member claims that another owes him or her money in connection with the business, he or she may even use language like “steal,” “thief” and “robbed” in comments about the other owner.  When that happens, can the target of the statements sue for defamation?  In Nguyen v. Vu, Civil Action No. 18-CV-01132, a United States District Court in Colorado recently dealt with such a claim and decided that the statements were not defamatory, particularly where the statements were made in the context of the family business dispute and were not made in the presence of any non-family members. Continue Reading Is it Defamation to Call a Co-Owner of the Family Business a Thief?