In a business divorce situation, minority shareholders in your business have rights under the law. You should be aware of six important minority shareholder rights available in Texas and how they could affect your business divorce. For further advice on negotiating your business divorce, we highly suggest seeking legal help. At Henke & Williams LLP, our team of experienced lawyers can answer your questions and help you move forward.
Minority shareholders, by their definition, own shares of stock in a corporation. Owning stock confers certain rights on these shareholders. For example, the right to vote on important matters involving the corporation is fundamental to stock ownership. However, corporations can limit voting rights to some extent for some classes or types of stock. They also can give some classes of stock rights to distribution or rights when winding up the corporation. Tex. Bus. Orgs. Code § 21.153(b). In a business divorce, the rights of minority shareholders in your corporation could become important. Your minority shareholders may be entitled to vote on the corporation’s dissolution, or they may be entitled to payment as you wind up the corporation.
Shareholders have the ability to form shareholder agreements regarding their ownership in a corporation. Tex. Bus. Orgs. Code § 21.101. Three common types of shareholder agreements involve buy-out/buy-sell rights, redemption rights, and dissolution rights. A buy-out could force majority shareholders to buy out minority shareholders’ interests in the business. A buy-sell agreement could dictate what happens to stock and corporate assets if a corporation and an owner decide to part ways, or if an owner becomes disabled, gets divorced, or dies. An agreement regarding redemption rights could give other shareholders or the corporation itself the right to buy back an owner’s stock if he decides to leave the corporation. An agreement regarding dissolution could allow minority shareholders to force dissolution of the corporation in a business divorce.
Disclosure and Information Rights
Minority shareholders in business divorces may find that they do not have enough information to assess their position to the corporation. Fortunately, the law allows owners of corporations to access corporate information for a “purpose reasonably related to the governing person’s service as a governing person”. Tex. Bus. Orgs. Code § 3.152(a). In other words, minority shareholders can look at corporate books and records if they need to understand their shareholder rights. When a business divorce is looming, a minority shareholder should promptly request to inspect the books and records.
As mentioned above, some classes of stock give shareholders distribution rights. Distribution usually refers to the right to receive dividends from the corporation. Some shareholder disputes can arise because minority shareholders feel they have not received sufficient dividends or don’t receive them frequently enough. In a business divorce, dividend payment could become a lingering issue if you are trying to dissolve the corporation.
In a business divorce, minority shareholders may feel slighted if the corporation terminates their employment (such as if they hold an officer position with the corporation). Keep in mind that Texas is an at-will employment state, so most employees have no guarantee that they will be retained in a business divorce situation. If you do have employment agreements with any employees of the corporation, speak to your business divorce attorney about how to handle them in the divorce. See Tex. Bus. Orgs. Code § 2.101(5).
Finally, minority shareholders may have rights related to the formation of a receivership when winding up a closely-held corporation. When a closely-held corporation plans to dissolve, it may need a receiver to assist in winding up. The receiver assembles and liquidates corporation assets, pays debts, and pays owners with any remaining money. Tex. Bus. Orgs. Code § 11.405. There are other types of receiverships that could implicate minority shareholder rights too.
The Business Divorce Lawyers for You
Henke & Williams, LLP can help with your Texas business divorce. As experienced Houston business lawyers, we evaluate your individual circumstances to tailor legal advice to you. Your business needs our knowledgeable insight to move forward. To schedule a consultation, call 713-940-4500 or use our convenient Contact Form.