There are many reasons for business owners to consider adding new partners, including to secure additional capital, to add needed expertise to help grow the company, to bring family members or close friends to join in building the business and to put a succession plan in place. Adding new partners can therefore provide a boost to the company’s revenues, lighten the load carried by the founder, and put the business on course for long-term success.  But this decision is not without risk because the new business partners may create conflicts, disrupt the business and insist on making changes that put the company’s existence in peril.

If after carefully weighing the pros and cons, business owners decide to move forward in adding new partners, this post reviews important steps they can take to protect themselves and the business from the decisions and actions of these new stakeholders in the company.

Equity Ownership Can Be Conditional or Subject to Cancellation

One protective step business owners can take when adding a new partner is to make the addition of a new partner’s ownership conditional or subject to cancellation. This approach permits the owner to wait to grant the ownership interest in the company to the new partner until he or she has met specified business goals by a certain date or to cancel the grant of equity to the new partner if the specific goals have not been achieved by the agreed date. Continue Reading Keeping Eyes Wide Open When New Members Join the Pack: A Cautious Approach to the Addition of New Business Partners

Lawyers play a critical role in negotiating and drafting contracts, but when business owners and investors enter into significant agreements regarding or on behalf of their private company, these documents are too important to leave them solely in the lawyer’s hands.  The parties to these business agreements need to carefully read and understand their terms if they want to avoid unwelcome surprises when their agreements become the focus in a future legal dispute.  There are a number of issues to consider in documenting business agreements, and the elements that go into developing binding business contracts is the subject of this blog post.

The Terms of the Written Agreement Control

The starting point in securing an enforceable agreement is to “get it in writing.”  Virtually all business agreements are entered into after the parties have discussed the material terms of the contract, and in some cases, these negotiations may last for weeks or even months.  One party to the contract may therefore conclude that assurances it received from the other party during these negotiations should be as binding as the actual terms of the agreement.  Unfortunately, a party who seeks to enforce oral promises or assurances outside the contract faces a steep uphill climb under Texas law.

Standard contract terms will likely include both a “merger/integration clause” and “anti-reliance provisions.”  These terms exclude from being part of the agreement any offers that were made during the parties’ discussions, as well as any representations the parties made that are not expressly set forth in the contract.  Over the past two years, Texas Supreme Court has made clear that the actual terms of the contract control, and it has repeatedly rejected claims that are based on statements made outside the contract.  In 2018, in Orca, the Supreme Court denied a fraud claim without requiring a trial on the basis that the reliance element of fraud can be “be negated as a matter of law when circumstances exist under which reliance cannot be justified.”[1]  Just last year, the Court overturned large jury verdicts in two separate fraud cases setting aside judgments based on alleged misrepresentations that were not set forth in the contracts at issue. Continue Reading Did Your Business Deal Just Do a Disappearing Act? Securing Legally Binding, Enforceable Contract Terms

There has been considerable speculation that one consequence of the Coronavirus will be an increase in the divorce rate resulting from togetherness imposed by the quarantine that pushes marriages already on shaky ground over the brink.  Whether divorces will increase in the future due to Covid-19 remains an open question, but what is certain is that a sizable number of future divorces will involve the transfer of a business ownership interest between spouses as part of the divorce.  To address this situation, this post focuses on key business issues that arise when one spouse (the “Divesting Spouse”) transfers an ownership interest in a business to the other spouse (the “Recipient Spouse”) as part of a divorce settlement.  Addressing these issues will help the Recipient Spouse continue to run the business successfully and also avoid future conflicts with the Divesting Spouse, as well as with future investors and potential buyers of the business.

1. Don’t Rely on Divorce Decree or Settlement Agreement to Document the Transfer of a Business Ownership Interest Between Spouses

A divorce decree and settlement agreement will document the terms of the divorce and the division of property between spouses, but it is not a good idea to rely on the decree or the divorce settlement to memorialize the transfer of a business interest between spouses.  There are a number of reasons for the Recipient Spouse to insist on securing a stock transfer agreement (or its equivalent), including the fact that the Recipient Spouse will likely be required to show the transfer document to third parties in the future, including banks or other lenders, new investors, company officers or managers, and potential future buyers.  The Recipient Spouse will not want to show the decree or settlement agreement to these third parties, however, because they include private matters unrelated to the business.  This will therefore require the Recipient Spouse to prepare a heavily redacted document for review by third parties.  It is more efficient to simply require a transfer document to be signed that is limited solely to issues related to the business. Continue Reading Family Law: Transferring Private Company Interests in Divorce—Going Beyond the Basics to Ensure Continued Success and Avoid Conflicts

L to R: Tom Bronson, Ladd Hirsch

Recently I had the pleasure of sitting down for a virtual interview with my friend, Tom Bronson, as part of his Mastery Partners webcast series.   Tom has a wealth of experience helping business owners prepare to sell their companies, and we visited about how business owners can maximize value at the time of sale.  We also cover a number of issues related to buy-sell agreements and other Business Divorce topics.   Listen to the podcast here.

“Adversity does not build character, it reveals it.”

James Lane Allen, Novelist, 1849-1925

The sudden onset of the Coronavirus has required private company business partners to confront unprecedented challenges.  In some cases, the partners’ actions in dealing with the Pandemic have led to conflicts revealing incompatible views between them in how to operate the business in a time of crisis.  As a result, the partners may want to engage in a Business Divorce after the virus subsides, but separating one or more business partners from the company is not likely to be simple or smooth if they have not already put a buy-sell agreement in place.  Fortunately, the absence of a current buy-sell agreement is not an insurmountable hurdle if the partners will take the time to negotiate and adopt a mutually beneficial partner exit plan.  Reaching agreement on a buy-sell agreement is a critical step for business partners to avoid a prolonged and expensive conflict that will be both disruptive to the company and also potentially destructive to their personal relationship.

This post discusses the key factors that both majority owners and minority investors will want to consider in negotiating a mutually acceptable buy-sell agreement that allows for partners to depart the business on amicable terms in the future.

The Trigger Point

The first question business partners will need to address is when the buy-sell agreement can be triggered.  To be fair to both sides, the parties will both want the right to trigger a buyout or redemption.  From the majority owner’s perspective, he or she may not want to be required to remain in business with the minority investor.  The majority owner will therefore want to secure a “redemption right” to repurchase the investor’s ownership interest at some point.  By the same token, the minority investor will not want to be stuck holding an illiquid, unmarketable interest in the company with no exit right.  The minority investor will therefore want to ensure to obtain a “put right” that enables the investor to secure a buyout from the majority owner and the right to monetize the investor’s ownership interest in the company. Continue Reading Time for A Buy/Sell Agreement? Private Company Owners May Need to Put a Partner Exit Plan in Place

In the midst of a global Pandemic that is devastating to the health of our community and to our economy, the last thing on the minds of private business owners may be the future sale of their company. But while business owners are sheltering safely at home as ordered, they may be wise to consider adopting a longer term view, and evaluating specific steps that would help to position the company for a future, profitable sale.

This post reviews potential hidden value in the business that the majority owner can bring to table to enhance its sale value, but which may not be reflected on its financial statements. This discussion does not present an exhaustive list, and instead, the purpose is to prompt a review of the company’s existing or potential business assets that may require further development after the Pandemic subsides and business activities are permitted to resume. Continue Reading Unlocking Hidden Business Value: Securing Top Dollar by Giving Full Appreciation to All Available Assets On The Sale of a Private Company

“You can’t always get what you want
But if you try sometimes, well, you might find
You get what you need”

You Can’t Always Get What You Want, The Rolling Stones

In addition to Mick Jagger’s legendary performances on stage and vinyl, the song lyrics of The Rolling Stones reflect wisdom that often goes unappreciated. This post focuses on issues that arise when spouses divide their private company ownership interests in the context of family divorce proceedings. When the private company ownership stakes held by the couple are highly valued, there is a potential for a win-win property division and settlement in the best interests of both spouses. You Can’t Always Get What You Want therefore aptly describes the prospects of negotiating a successful Business Divorce in a marital divorce action. Continue Reading Family Law: Getting What You Need in Divorce—When It Isn’t Possible to Get All That You Want

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“Impostor syndrome is the voice in your head that overlooks, discounts and discredits your accomplishments.”

Jerry Colonna, author of “Reboot: Leadership and the Art of Growing Up”

We have written about the Imposter Syndrome before, but it may have become an even more prevalent concern for business professionals. Just last week, Entrepreneur magazine published a series of interviews with business leaders who have dealt with this challenge in an article titled: “10 Successful Leaders Share Their Struggles with Imposter Syndrome and How to Overcome It” (view the article). Moreover, the Imposter Syndrome is not confined to leaders at the top of the corporate chart as more than half of the employees at Amazon, Facebook, Microsoft, and Google who responded to a survey in 2018 reported that they sometimes feel they don’t deserve their job despite their accomplishments. ¹

Finally, research from the International Journal of Behavioral Science indicates that 70% of people experience imposter syndrome at one point in their lives (view the article). It is time to look again at the Imposter Syndrome, and to consider ways this problem can be dealt with effectively by businesspeople when they experience feelings of inadequacy.

Continue Reading The Imposter Syndrome is Real, But It Can be Overcome

Logic is the beginning of wisdom, not the end.

— Dr. Spock, Star Trek, Starfleet Officer

The long-running legal saga between Enterprise Products Partners (“Enterprise”) and Energy Transfer Partners (“ETP”) may finally be nearing its end after the Texas Supreme Court issued a unanimous decision last Friday, January 31, 2020, holding that no partnership ever arose between the parties. (Read more) This dispute between two of the major players in the energy industry focused on the legal standard for determining when a partnership is formed. ETP argued that the test for partnership formation should be based on the parties’ conduct, while Enterprise maintained that specific conditions the parties agreed to include in their contracts had to be established before a partnership was created, and it contended that those conditions had never been met.

The Supreme Court’s opinion may be the final chapter in eight years of hard-fought litigation between Enterprise and ETP, although ETP will have the right to file a petition for rehearing of the Court’s decision. We will share our third blog post about the case and also review some important lessons for business owners gleaned from this lengthy legal conflict. ¹ Continue Reading Business Owners Take Note as Enterprise Completes Its Mission: Supreme Court Holds No Common Law Partnership Was Formed with ETP

Next to physical survival, the greatest need of a human being is psychological survival—to be understood, to be validated,
to be appreciated.

William Covey, 7 Habits of Highly Effective People
____________________________________

The deepest principle of human nature is a craving
to be appreciated.

William James, American Psychologist and Philosopher

The new year has started and private company owners are ramping up business plans for 2020.  Their focus is on specific key targets—adding customers, building new lines of business, developing more efficient ways to produce their products or deliver their services and cutting costs without hurting quality.   These business plans are driven by financial concerns with the ultimate goal of making the business more profitable in the year ahead.

While profitability is a critical measure of business success, as we launch into this new year, we want to challenge our audience of private company entrepreneurs, investors, officers, directors, managers, and advisors to rethink their approach to achieving profits.  Consider the potential outcome from elevating the appreciation felt by all company stakeholders, which goes beyond elevating the company’s balance sheet.  The important role of appreciation in business is described in a blog post titled, The Value of Gratitude as a Business Strategy:

“Gratitude is something that we don’t normally think of as a business fundamental. With lean operations and the focus on the bottom line, most organizations don’t take the time to weave gratitude and appreciation into their business strategies.  But without gratitude, teams begin to break down, clients stop returning, morale takes a turn for the worse, and your business partners will start to lean away.” (Read)

How Should Appreciation Be Defined

As a starting point, appreciation in the business context is defined as the increase in the value of assets over time.   Appreciation can also be viewed, however, as critical component of a powerful company culture.  In the workplace, appreciation is a powerful motivator:

“. . . evidence suggests that gratitude and appreciation contribute to the kind of workplace environments where employees actually want to come to work and don’t feel like cogs in a machine.” (Read)
“Feeling genuinely appreciated lifts people up. At the most basic level, it makes us feel safe, which is what frees us to do our best work. It’s also energizing. When our value feels at risk, as it so often does, that worry becomes preoccupying, which drains and diverts our energy from creating value.”  (Read)

Focusing on the role of appreciation in business is not a concept that should struggle to find a place in modern company culture.  In her article in Forbes in 2018, Kelly Siegel points to research showing that “focusing on gratitude is said to lower blood pressure, improve your sleep, reduce depressions and anxiety and help prevent substance abuse.”  Turning to the business world, she stated:

“A culture of gratitude in the workplace is just as critical in personal practice.  It can drive productivity, employee retention, wellness and engagement.  Instituting gratitude at work is something anyone can do, from front-line team members to the CEO.  Gratitude is viral, once people see appreciation catching, they are likely to jump in an keep it going.”  (Read)

What would a “culture of gratitude” look like in practice, and how would it be created and maintained?  A number of companies and commentators are showing the way.   Let’s take a look at some of the important lessons that have been learned to date about how appreciation can be such a positive and powerful force in a company’s culture. Continue Reading Business Appreciation: Adding Gratitude to Company Culture in 2020