family-owned business

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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 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

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?