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?
Parents frequently transfer their ownership interests in a family-owned business to their children. This is usually done in connection with an owner’s estate planning or as part of an orderly succession of the business’ management. But what happens if an owner transfers his or her business interests in order to place the business assets or interests out of the reach of that owner’s creditors? In that case, the transfer may be avoided as a fraudulent transfer. Continue Reading Can Your Transfer of Family-Owned Business Stock or Assets be Avoided as a Fraudulent Transfer?
Owners of family-owned businesses sometimes enter into agreements between each other for the purchase and sale of shares in the business. Ideally, these agreements are negotiated, documented and implemented in a way that each party is satisfied with the result – e.g., one owner acquires additional shares while the other owner receives the agreed-to cash value for the shares and exits the business. But sometimes one party (often the seller) will claim that the deal was not fair, that he or she did not in fact receive the full value of the shares or that the agreement should be voided due to “economic duress.” Continue Reading Watch Out For Claims Of Economic Duress After Purchasing Shares In A Family-Owned Business
Corporate shareholders with voting shares have the right to elect a corporation’s directors. Elections typically occur at an annual shareholder meeting. If the company does not schedule an annual meeting, a shareholder may have the right under the applicable state corporation statute to ask a court to order that such a meeting be scheduled. In Ielmini v. Patterson Frozen Foods, Inc. (Court of Appeals of California, Fifth District, September 12, 2018), a California Court recently ordered that an annual meeting be held in the context of a family-owned business where certain directors and controlling shareholders had previously refused to hold a meeting. Continue Reading Court Orders Family-Owned Business to Hold Annual Shareholder Meeting
A judge in the Supreme Court for the State of New York recently allowed a petition for “common law dissolution” of a family-owned business filed by one shareholder to proceed despite the arguments of the other shareholders that the case should be dismissed. Yu v. Bong Yu, Docket No. 656611/2016, Supreme Court, New York County (August 15, 2018). Patrick Yu claimed that he was a shareholder of Moklam Enterprises, Inc. The remaining owners allegedly include his father, Bong Yu, his brother, Raymond Yu, and his sister, Catherine Yu. Moklam was an entity that funded the Yu family’s various real estate and business activities. While the remaining family members all had roles in Moklam’s business operations, Patrick, a lawyer, was employed only as counsel to Moklam and the other Yu family entities. Continue Reading Son’s Lawsuit to Dissolve Family Business Based Upon Relatives’ “Vendetta” Against Him Allowed To Proceed
On August 10, 2018, Massachusetts Governor Charlie Baker signed into law a piece of legislation entitled “An Act Relative to Economic Development in the Commonwealth.” This new legislation brings long-awaited non-compete reform to Massachusetts, and lays out some new guidelines for business owners to consider when determining whether or not to require employees to sign true non-compete agreements that would prohibit a departing employee from engaging in competitive activities. Continue Reading What Business Owners Should Know About Massachusetts’ New Non-Compete Law
As the M&A market stays active, more and more family-owned businesses are selling to third parties. Many of these transactions involve sophisticated buyers, who spend a lot of time, money and effort on due diligence of a seller. While there are many elements that go into a successful sale of a business, sellers can take a few steps prior to starting on the sale process to help ensure smoother negotiations (and hopefully a smooth transaction). Continue Reading Thinking of Selling Your Family Business? Some Preliminary Steps.