Family members often transfer family-business ownership interests or other assets between each other. Their discussions sometimes progress from informal negotiations to a written term sheet to a final written agreement.  However, a term sheet itself can be found to be a binding agreement if the terms are sufficiently definite for a court to determine each party’s obligations and if the parties’ conduct evidences their agreement to perform according to those terms.

In Kunz v. Kunz, a Court of Appeals in Iowa recently ruled upon a claim by one family member against another to enforce a “Settlement Memorandum” which provided for the purchase and sale of stock in the family business, even though the Memorandum contemplated the drafting of later documents to finalize the transaction.  In 1973, brothers Richard and Robert Kunz formed Happy Homes, Inc., a company that sold factory-built homes.  Richard died in 2007 and his 50% interest in the company was transferred to his wife, Connie.  Connie and Robert then began discussing the sale of Richard’s interests and later participated in mediation to aid in these discussions.

Continue Reading Do You Have an Enforceable Contract for the Sale of Family-Owned Business Interests or Just an Agreement to Agree?

Family-owned businesses often employ multiple family members. Even if there is an expectation that employment will continue indefinitely, the company and the family member employees both usually reserve the right, explicitly or implicitly, to terminate the employment “at-will,” meaning at any time and for any reason.  The terms of such at-will employment need not be set out in writing, though sometimes they are.  However, where the parties contemplate the right and obligation of lifetime employment, they should put the employment terms in writing to avoid the potential application of the statute of frauds.

The statute of frauds, generally, bars a party from bringing a claim for breach of an agreement that cannot by its terms be performed within one year, unless the agreement is in writing. In some states, such as Massachusetts, an otherwise enforceable oral agreement for lifetime employment does not fail due to the statute of frauds, because, the courts reason, the agreement could theoretically be fully performed if the employee dies or the company goes out of business within one year of the contract date.  In other states, such as Illinois, an oral lifetime employment agreement is not enforceable under the statute of frauds, because, as the courts reason, a lifetime employment agreement “anticipates a relationship of a long duration – certainly longer than one year.”  Courts in those states apply the statute of frauds to such agreements in recognition of the evidentiary concern that memories can and do fade over time and thus become unreliable and in order to protect defendants and the court from “confusion, uncertainty and outright fraud.”  Continue Reading If You Expect to Work in the Family-Owned Business for Life, Be Sure to Get It in Writing

Shares in family-owned businesses are often transferred between family members, whether through a sale or gift during a shareholder’s lifetime or through inheritance after an owner’s death. The parties to such a transfer should make sure it is properly documented to reflect the intention to transfer the shares. Typically, this is done through the transferor’s delivery of a signed share transfer instrument and the company’s issuance of a share certificate in the new holder’s name. In the absence of proper documentation, the transferee may not have a valid claim to the share ownership. Even worse, the company may find itself in the middle of an ownership dispute if the transferee has attempted to acquire the shares through fraud or deceit.

Continue Reading Corporate Formalities Matter in the Transfer of Shares of Family-Owned Businesses

Welcome to Murtha Cullina’s Family Business Perspectives Blog.  This Blog is designed to identify and comment on common legal issues and current cases and developments that affect family-owned and controlled businesses.

Why focus on family-owned businesses?

Approximately 90% of businesses in the United States are family-owned or controlled.  These businesses generate over 50% of the country’s GDP.  Clearly, there are some noteworthy and very large family-owned or controlled businesses, including Walmart, Ford, and SC Johnson Company (which proudly bills itself in its ads as “a family company”), and these companies have succeeded through many generations of family management and ownership.  There are also millions of other less well-known family businesses which operate on a smaller scale or strictly in their local markets – from the corner store, to the family farm, to the manufacturing company in the local industrial park, to the real estate holding company that owns and manages commercial or residential buildings, and so on.  Regardless of the industry, all these family businesses, at one point or another, face the common issues of whether the business will transfer to a future generation, when and on what terms that may happen, and which family members will continue to be involved. 

Continue Reading Welcome to Murtha Cullina’s Family Business Perspectives Blog.