In the private company world, the buck stops with the majority owners, who generally hold the reins to running the business. In our experience, however, it is not uncommon for some majority owners to push the limits of their control by engaging in self-dealing transactions that are for their own benefit. The self-interested transactions in which majority owners may engage can take many different forms, including paying excessive bonuses to themselves, directing the company to enter into “sweetheart” deals with their other companies, taking company opportunities for their own gain, and using company assets or personnel free of charge.
When minority investors seek legal recourse from abuse of authority by its majority owners, the controlling owners will often point to a little-known Texas statute, which they contend renders them immune from liability for their actions. See Texas Business Organizations Code § 101.255. As we say in Texas, that dog won’t hunt. This post explains why the existence of Section 101.255 does not provide majority owners with a “get out of jail free” card, and why this statute does not validate their improper conduct when they engaged in self-dealing.
Continue Reading The Private Company Cookie Jar: Who Decides How Many Cookies The Majority Owners Get to Eat (And Which Ones)?