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

 

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

When a shareholder claims that a director or officer has harmed a corporation through his or her improper conduct, these claims typically must be brought through a derivative action, in which the shareholder sues on behalf of the corporation. Ordinarily, however, a corporation’s board of directors has the authority to bring lawsuits on the company’s behalf, for the benefit of all of the shareholders.  Thus, a shareholder who wants the company to pursue claims must first make a demand upon the board to file a lawsuit, unless such a demand would be futile.  As courts in Delaware and elsewhere have determined, so-called “demand futility” may be found where there is a “reasonable doubt that, as of the time the complaint is filed, a majority of the board could have properly exercised [their] independent and disinterested business judgment in responding to a demand.”  In these situations, a demand would be futile because “a shareholder would be effectively asking a majority of the board of directors to cause the corporation to sue themselves.”  If a shareholder attempts to bring a derivative suit without first making a demand or without showing futility, that suit may be dismissed on a motion by the defendants. Continue Reading Do Shareholders Need to Make a Demand Upon the Board of Directors Before Filing Suit on a Family-Owned Corporation’s Behalf?

When a business owner dies, his or her ownership interests often become part of a probate estate or are transferred to one or more trusts in order to continue the operations of the business. But sometimes the decedent’s business is distressed at the time of death and of questionable value to the estate or to the trust beneficiaries. In that case, executors or trustees, along with their beneficiaries, should understand what fiduciary standards apply to the use of estate or trust resources in connection with the continued management, operation and ownership of the business. Continue Reading Should an Estate or Trust Operate a Decedent’s Family-Owned Business?

Shareholders of family-owned businesses sometimes assert claims of misconduct against their co-owner relatives.  These claims can take the form of oral complaints or written claim letters.  However, actual lawsuits based on such claims must be timely filed in court or else they may be barred by the applicable statute of limitations, leaving the shareholder with no ability to pursue the claims.  A United States District Court in Ohio recently dismissed certain claims by a sister against her brother in connection with a family-owned business because, the court ruled, the sister waited too long before filing suit. Continue Reading Watch the Calendar When Considering Claims in Connection With a Family-Owned Business