Gibson Law Group - May 2018

STARTING A BUSINESS WITH OTHERS?

PLAN AHEAD TO AVOID BEING STUCK TO YOUR FORMER BEST FRIEND

SEND CARDS FOR STRANGE HOLIDAYS Sure, you mail cards during the winter holidays, but so does everyone else. Why not mail a card for National Doughnut Day on June 1? You can even include a coupon to a local doughnut shop. Or you can send a funny card with a picture of your office dog for National Mutt Day to announce that, thanks to your client’s support, your company is donating to a local animal shelter. These ideas may work great for your clients, or you might need to brainstorm a bit. Your clients are as unique as your company, so don’t hesitate to find a special way to show them you care. SUDOKU

When starting a business, many individuals realize the importance of creating a new business entity (corporation, limited liability company, or limited partnership) to reduce and eliminate personal liability for unexpected events and unfortunate outcomes. While it may be difficult to imagine the universe of potential issues when forming a new business entity, planning ahead should extend past the documents filed with the state. It is equally if not more important to plan ahead to avoid or eliminate internal problems and management issues that may arise when you go into business with others. It may be difficult to raise this subject with other founding owners, partners, or members; after all, no one likes to go into business planning for failure, especially with friends or family. And you may not be able to predict how your future business partners will react to this pressure. If you set clear expectations, duties, authority, and even a possible off-ramp for you and other business partners upfront, however, you can save yourself even more stress — and a lot of money — in the long run. Even in a small business started by friends or family, you should create a governing document to establish each owner, member, or partner’s rights and responsibilities in the event an owner wants or needs to exit the business. Indeed, if you are a minority stakeholder in a business, it is critical that you contractually protect your rights and remedies in the company in advance. For decades, Texas law allowed a minority stakeholder in a closely held company to sue and seek a buyout when faced with an “oppressive” majority shareholder. This changed in 2014 when the Texas Supreme Court held that a minority shareholder has “no statutory right to exit the [business] venture and receive a return of capital.” Through this opinion, the Texas Supreme Court dramatically curbed the ability of minority business owners to seek legal redress for oppressive conduct by a majority owner. Instead, a minority shareholder’s legal recourse against an oppressive stakeholder is now effectively limited to the following causes of action: (1) an accounting; (2) breach of fiduciary duty; (3) breach of contract; (4) fraud and constructive fraud; (5) conversion; (6) fraudulent transfer; (7) conspiracy; (8) unjust enrichment; and (9) quantum meruit. None of these legal remedies require the oppressive stakeholder to return the minority shareholder’s capital. In its opinion, the court repeatedly stressed that owners of a closely held corporation can contract to expressly deal with issues that often arise in the context of closely held corporations. This curtailment of shareholder rights may effectively leave you stuck in a business where you do not have any management authority. If you are starting a business, you have a myriad of legal issues that you should consider and guard against, including contractually setting forth the rights and responsibilities of each owner of your new business. At The Gibson Law Group, PC, we work hard to help you protect your legal interest at the outset of your new business in order to prevent and eliminate later litigation and disputes.

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1550 NORWOOD DR., STE. 402, HURST, TEXAS 76054

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