A New York LLC with a broad, “purposeless” purpose clause and demonstrated financial sustainability is dissolved over . . . the minority owner’s disagreement with the menu?
Continue Reading The Legal Ramen-ifications of Dissolving a New York LLC Over Noodle Choices
In a split 3-2 decision last week, the Appellate Division, First Department, affirmed an order dismissing a claim to enforce an oral buy-out agreement involving a Delaware LLC as barred by the merger clause in a subsequently amended operating agreement that the plaintiff never signed. Read about it in this week’s New York Business Divorce.
Continue Reading New York Appellate Court’s Split Decision Involving Delaware LLC Pits “Harsh” Contractarianism Against “Fundamental Fairness”
In this week’s New York Business Divorce, read about an exceptionally rare find: a bifurcated jury trial in a business divorce dispute.
Continue Reading Rare as a Dodo: Bifurcation in Business Divorce Trials
“Under any standard of value, the true economic value of a business enterprise will equal the company’s accounting book value only by coincidence . . .” says the late business valuation expert and author Shannon Pratt. So why do so many shareholder buy-sell agreements require that the shares be purchased for book value? This week’s post explores.
Continue Reading And the Award for Most Creative Attempt to Evade a Book Value Buy-Sell Provision Goes To . . .
This week’s New York Business Divorce takes a look at the common-law history leading to the enactment of BCL 713 regulating self-interested transactions by corporate directors, along with illustrative synopses of cases applying the statute.
Continue Reading Enforcing the Guardrails on Transactions Involving Interested Directors of Close Corporations
In this week’s New York Business Divorce, we consider a first-in-a-generation appeals court decision affirming a lower court’s removal of a corporate officer “for cause.”
Continue Reading The Flexible “For Cause” Standard for Director and Officer Removal
This week’s post takes us to the halls of Delaware Chancery Court, where a recent decision from Vice Chancellor Laster offers a first-of-its-kind roadmap for assessing the fiduciary duties owed by a majority shareholder.
Continue Reading The First State Defines the Scope of Majority Shareholder Fiduciary Duties
This week’s New York Business Divorce revisits the issue of indeterminate LLC membership interests and the resulting disputes that can arise when not properly addressed in the operating agreement.
Continue Reading The Perils of Indeterminate LLC Membership Interests, Redux
When a corporation disposes of “all or substantially all” assets, shareholders opposed to the transaction are entitled to dissent and demand fair value for their shares in an appraisal proceeding. Does a corporation’s transfer of its assets to another entity with retention of “beneficial” ownership trigger the statutory right to dissent and seek fair value? Learn the answer in this week’s New York Business Divorce.
Continue Reading Direct to Beneficial: Change of Corporate Ownership Structure Yields No Right to Dissent and Seek Appraisal
When a closely-held business is profitable, self-interested owners naturally want a bigger slice of the pie, especially where the personal relationships among the owners are frayed. Perhaps that’s why we often discuss the value of freeze-out mergers as a mechanism for those in control of a closely-held corporation or limited liability company to squeeze a minority owner out of the business’ future profits.
Equity dilution is another common method by which those in control of a corporation or LLC attempt to squeeze out a minority owner. For one, stock dilution impairs the minority owner’s ability to influence company action by voting his shares, and it lessens the owner’s right to participate pari passu in the distributions or dividends of the company. Perhaps more importantly, a minority owner can see his or her ownership interest diluted below certain critical thresholds—for instance, the 20% ownership required to petition for dissolution under BCL 1104-a.
Despite the potentially drastic consequences of stock dilution, many closely-held businesses we encounter fail to adequately address the issue of dilution in their governing documents. And New York caselaw on the issue leaves plenty to be desired. Let’s interpret those factors as an invitation to review the basics, key caselaw, and the current status of the improper dilution claim.Continue Reading Let’s Talk About Dilution