If you are a business owner or a stockholder, understanding the concept of a business divorce is crucial. Like a marital divorce, a business divorce is, in essence, the separation of the shareholders or partners and the liquidation of business assets. Your rights as an owner vary depending on the type of company you have as well as the agreements in place that you have governing the operation of your company. It is critical that you are familiar with your rights as a business owner or shareholder.
At Freundlich & Littman, LLC, we want to preserve your rights whether you are a partner or minority shareholder. A business divorce is often contentious and can last for long periods of time. At the first sign of trouble, give us a call. We work hard to defend our client’s rights.
What Is A Business Divorce?
A “business divorce” is the process during which a business becomes divided. It applies to businesses formed as partnerships, LLCs, and corporations. Some events that commonly trigger business divorces are when a partner is withholding money, a majority shareholder is trying to cut out the minority shareholders, or when it becomes clear that the business can no longer function as it was designed to. It is essential to seek out an attorney early on in the process so that the company assets are accurately evaluated and your payout is appropriately determined.
Business Divorce & What You Can Do
Business divorce is like a marital divorce in many ways. Often, the relations between both parties are volatile. Each side looks to make it out of the divorce in the best possible position. Meanwhile, the prosperity of the business lies in the balance.
The law requires corporations to notify shareholders of important changes that affect them. The majority has more stocks. This means the majority has more weight in the decision-making process. In order to be fair, a corporation should take into account the minority shareholder’s rights.
There are several ways the majority will seek to divorce themselves from the minority. The majority tends to have positions of power within the business. They sit on the board and have the power of dismissal. They will let go of minority shareholders.
Some businesses give employees a share of the stock or a stock option when joining the company. The stock option needs to mature for a period of years before the shareholder realizes its full value. It is an incentive to join the company and stay while the stock matures. Once the majority fires a minority shareholder, the company then sells the stock. Likewise, the company may offer a financial offer if the stock option plan has yet to fully mature. These offers tend to be a pittance in comparison to the full fair market value of a matured stock.
Essentially, the majority hits the minority “where it hurts.” They will not-so-gently push someone into retirement. The majority may assign a minority shareholder to another division to induce quitting. They may also take away certain perks or demote the individual. Once the employee has left, the majority is free to buy the shares.
Via mail or in an e-mail, you may have received notification that a vote has taken place to change minority voting rights. The majority, often just a few shareholders, will overrule the minority interests in an attempt to push out the minority. They are hoping to overthrow the minority to gain control.
It does not stop there. A business may even try to physically prevent a minority shareholder from exercising their rights. Majority shareholders in a business have denied building access to minority shareholders in the past. The vote of a minority shareholder is important for growth.
Minority vote is a right. Do not allow the majority to gain control over your investments.
Business Divorce Lawyers
We at Freundlich & Littman are capable and willing to take a look at your rights. We are business divorce attorneys. If you received a notification, do not hesitate to contact us today. We service the greater Philadelphia area’s businesses. If you fear the majority shareholders are attempting to push out the minority shareholders, do not wait until it is too late. We can circumvent the majority shareholders on your behalf. Do not let the majority affect your rights as a minority shareholder. Call us today at 215-545-8500 to schedule a free consultation.