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?

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 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?

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?

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

Corporate shareholders often expect to receive dividends in connection with their ownership of corporate shares. This is particularly true when owners invest capital in or provide other services to the company in exchange for their ownership interests.  But do shareholders’ rights to or expectations of dividends change when shares are acquired through gift or inheritance?  This issue frequently arises in family-owned businesses where shares are transferred from one generation of owners, who may have built the business through their investment of capital and labor, to the next generation, who themselves may never have worked in, or invested in, the business.

In Jones v. McDonald Farms, Inc., a Court of Appeals in Nebraska recently was presented with a claim by Diane Jones against her two brothers, seeking a decree of judicial dissolution of the company based on the brothers’ alleged “corporate oppression” through their failure to pay dividends to Diane in proportion to her share ownership.  Charles and Betty McDonald had incorporated McDonald Farms, Inc. in 1976.  Their two sons, Donald and Randall, began farming with Charles in the mid-1970s and they became officers of the company in 1989, while continuing to perform all farming duties.  From 1976 through 2010, Charles and Betty were majority shareholders and Donald and Randall were minority shareholders.  In 2010, Betty died and her shares were devised equally to her four children, including Donald, Randall, Diane and another sister, Rosemary.  In 2012, Charles gifted his stock equally to Donald and Randall.  Charles died in 2014.  As a result of these transfers, Donald and Randall each held 42.875% of the company’s stock, while Diane and Rosemary each owned 7.125% of the stock.


Continue Reading Do You Have a Reasonable Expectation of Receiving Dividends if You Acquired Your Shares in a Family-Owned Corporation Through Gift or Inheritance?

Family-owned businesses that are organized as limited liability companies typically reflect the terms of the company’s governance, along with the members’ financial rights and obligations, in a written operating agreement. The terms of the operating agreement often specifically include what, if any, payments a member is entitled to if he or she withdraws as a member of the LLC before the LLC dissolves.  For example, the operating agreement may limit the right to payment of a withdrawing member to the return of any balance in his or her capital account.  An operating agreement may even provide that a member is entitled to no payment whatsoever upon withdrawal.  In any case, agreed-upon provisions concerning payments upon withdrawal will reflect the members’ expectations from the outset.  Such provisions can also protect the LLC from having to make large and unplanned payments upon a member’s unilateral decision to withdraw at a point in time when the LLC may not have the funds to pay such a withdrawal distribution.

Continue Reading Will Your Family-Owned LLC Be Required to Pay the Fair Value of a Withdrawing Member’s Interest?

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?