| The general rule in the corporate governance of | | | | 7. What happens if there is a deadlock or major |
| business entities -- including corporations, limited | | | | disagreement on important issues? |
| liability companies and partnerships -- is that | | | | All of these questions arise frequently in the |
| absent an agreement or statutory requirement to | | | | context of jointly-owned business entities. |
| the contrary, majority rule governs. Indeed, | | | | The limits on majority action, and the remedies |
| majority equity owners often assume that they | | | | available to aggrieved minority shareholders, LLC |
| can do pretty much anything they want with | | | | members and partners, vary from state to state, |
| regard to the business entity. | | | | and may also vary by type of entity -- i.e., the |
| However, this is an erroneous assumption. Over | | | | rights of a shareholder in a closed corporation |
| the years, many legal principles have evolved | | | | may be different from the rights of an LLC |
| which limit the freedom of the majority to do as | | | | member in a limited liability company and those of |
| they wish. Among the practical issues that | | | | a partner in a partnership. The law in this area is |
| frequently arise in the governance of non-public | | | | complex, often imprecise, and constantly evolving. |
| business entities are the following: | | | | The purpose of these blog posts will be to |
| 1. Under what circumstances can an interest | | | | provide some guidance to equity owners in |
| owner who works for the business entity have | | | | privately held business entities as to their rights |
| his or her employment terminated or | | | | and obligations relating to the management of |
| compensation reduced? | | | | these entities and vis-à-vis their fellow equity |
| 2. When can an interest owner be excluded from | | | | owners. Ultimately, this may benefit such equity |
| management decisions or removed from a | | | | owners in several ways: |
| management position, i.e., board membership or | | | | 1. Enable them to plan ahead in the formation of |
| officer position? | | | | their business entities and assure that the |
| 3. When can the business entity be forced to pay | | | | governing documentation reflects the parties' |
| dividends or make distributions? | | | | intent on key issues. |
| 4. What are the restrictions on an owner doing | | | | 2. Educate them as to what actions are and are |
| business with the entity or receiving | | | | not permissible, so as to minimize the chances of |
| disproportionate benefits from it as compared to | | | | costly disputes, which may distract from and |
| other equity owners? | | | | injure their businesses. |
| 5. Under what circumstances and upon what | | | | 3. Provide guidance that may enable the resolution |
| terms can an owner be forced to relinquish his or | | | | of disputes before they erupt into litigation. |
| her equity? | | | | 4. Empower them by letting them know what |
| 6. Under what circumstances can an owner force | | | | their rights are and what remedies are available if |
| a buy-out of his or her interest? | | | | those rights are abused. |