How this “reasonable articulation” will play in court will depend on the facts of each case. For example, in applying this standard in another recent case (Chitwood v. Vertex Pharmaceuticals, Inc.), the trial court judge rejected a shareholder’s request for company documents concerning an investigation by a special committee of the board into the stock trading activity of certain company officers or directors. In that case, the Court determined that the shareholder “offered no evidence at trial calling into question the independence of the Special Committee or the diligence of its efforts” in its investigation. This case is currently on appeal to the Supreme Judicial Court, with one of the issues being whether the trial court applied the proper standard in determining if there was “some evidence” to support a credible basis for inferring possible misconduct. Regardless of the outcome of the Chitwood case on appeal, it … [Read more...] about What Corporate Records do Family Businesses Need to Provide to Their Shareholders?
Further, as noted, a court may come to a different conclusion as to the level of formality needed, even in a family business, where rights of creditors or other third parties were involved. Indeed, it is entirely common for third parties dealing with family businesses, such as lenders, investors, or possible merger partners, to require formal documentation of corporate authorization for material decisions and transactions, as well as maintenance of complete and accurate corporate records. In the end, and despite the added paperwork and processes, family businesses would benefit far more from complying with required corporate formalities regarding decision-making and record-keeping than they would from ignoring such requirements on the assumption (often incorrect) that no one will ever make an issue out of the lack of formalities. … [Read more...] about Do “Corporate Formalities” Matter in Family Businesses?
A recent trial court decision from New York – Utopia Home Care, Inc. v. Revival Home Health Care, Inc. – highlights the confusion and potential for liability that can arise when an employee signs a document on a company’s behalf without express authority to do so. According to the Court’s decision, Utopia is a family owned and operated business, with its president, her father and her brother being the company’s sole stockholders and officers. Utopia provided home care services for patients referred by Revival. A written contract, signed by Utopia’s president, provided the terms of payment for these services. … [Read more...] about Who Is Authorized To Bind Your Family Business To Contracts?
By way of background, in 1990, the Congress enacted special provisions to the Internal Revenue Code that were designed to limit what it perceived to be abusive valuation practices for the transfer of interests between family members in various family-owned corporations and partnerships. These new proposed regulations increase the scope of existing law—and significantly curb the use of discounts when valuing minority ownership interests in a family business when those are transferred to family members (whether by gift, sale or bequest). These proposed regulations would severely restrict the ability of a taxpayer to make leveraged (i.e., discounted) gifts and will likely increase estate taxes on interests in a family-controlled entity that a taxpayer may own at death. To accomplish this goal, the proposed regulations allow the IRS to ignore restrictions on transfer or liquidation under governing documents for valuation purposes, even if they are permissible under state law. … [Read more...] about Transferring the Family Business Is About to Get More Costly
“Today we are left on our own, to face very strong competition. To survive this competition we need the government’s support, because not all of our young generation are interested in going into business,” he goes on to explain. “I have three sons and none of them are interested.” … [Read more...] about Meet one of the UAE’s first family businesses