#shareholder #oppression #litigation
I just read in the ABAJournal article that Delaware passed a law favorable to shareholders in litigation.
“A law banning corporate bylaws that impose a hefty price on investors who file unsuccessful shareholder derivative suits has been signed by Delaware’s governor.”
The Delaware legislature apparently recognizes the challenges that minority shareholders can face in closely held businesses.
In my practice, one fundamental challenge that I have seen is this:
In a closely held company it is very easy for one group of owner[s] to freeze out another owner.
I guess the first question is, “freeze out from what*?”
Control – Decision-making
Disclosures of Company Business
Profits in the Company
Employment in the Company.
What should a business owner/operator do to protect himself/herself?
Well, you have two readily apparent choices – address the issue before the business is formed, or address it once the problem arises.
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In most jurisdictions, including Texas, to be enforceable a noncompete agreement must be reasonable in the scope of its geographic limitation and in the scope of activity restrained. Much litigation has arisen concerning whether specific geographic and/or activity limitations were reasonable under certain circumstances. But what if the noncompete agreement is silent?
A recent 8th Circuit decision, applying Arkansas law, upheld judgment on the pleadings against an employer whose noncompete agreement failed to set forth its geographic scope or the scope of activities proscribed. The noncompete agreement provided:
COVENANT NOT TO COMPETE: The Employee agrees that during the term of this Agreement, and for two (2) years following termination of this Agreement by the Company, with or without cause; or, for a period of two (2) years following a termination of this Agreement by the Employee, the Employee will not directly or indirectly enter into, be employed by or…
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