In some states, such as Delaware, obligations other than the implied good faith and fair trade contractual agreement may be imposed. Even if the officer or members of the majority have waived their obligations to the minority, the minority member should seek the right to accept “self-dealing”, i.e. transactions between LLC and a controlling member of a related enterprise, after all essential information related to the transaction has been provided. If minority members do not have the right to authorize interested transactions, the corporate agreement should at least stipulate that an “interested transaction” must be “completely fair” to LLC and its members. For example, if the minority shareholders are employed in the company, the majority shareholders can terminate this employment relationship. One of the main advantages for minority owners in a small business is employment – essentially buying from a job – this can deprive the minority owner of the main reason for staying invested. If the minority owner has contracts with the company, for example. B as a seller or consultant, these can be terminated. (Of course, all the conditions of an employment relationship or other agreements that limit dismissal must be respected).
This doctrine, often referred to as “minority intrusion,” prohibits majority shareholders from using their power to deny minority shareholders the right to participate in or derive financial income from the owned business. Examples of repressive behaviour may be as follows: when an undertaking is dissolved, it may not carry on any activity unless it is appropriate to liquidate its assets and activities. Once all creditors have been paid, the assets are distributed to the owners (on a pro rata basis). There are certain assets, such as intellectual property, that may need to be valued and distributed “in kind” to owners. For limited communities, instead of a judicial liquidation, the remaining shareholders can acquire the shares of the complaining shareholder at their “fair value”. The provisions relating to the management of a business and the protection of minority owners are limited only by the creativity of the owners and their lawyers, and a full discussion of the possibilities would be beyond the scope of the article. If you are considering a minority stake in a business, think carefully about your expectations regarding: no written agreement: in the early stages of many new businesses, owners start “on a handshake.” Everyone trusts everyone, and no one sees the need to reduce anything, write or hire a lawyer to design a company agreement. These owners do a great job of predicting the success of their new product, idea, or business plan, but they do a bad job of predicting the problems that success may pose. Years later, these owners often find themselves in disputes, usually over money or control of business. There are no written agreements to give direction, and each owner has a different memory of the past. An LLC that needs additional capital may try to seek that capital by calling for capital.
If the minority member is an investor, notification and the opportunity to invest additional funds may be all the minority member is willing to commit. Minority members of companies created for a given company may be required to withhold additional capital in the future, but may negotiate a cap on their future contribution commitments. If a minority member is unable to control the establishment of a call for capital or to obtain a cap, the minority member may require that there be a proven “need” for additional resources or include a provision requiring management to attempt to borrow funds to cover the needs before a call is made. Family and friendly obligations: Owners of tightly run businesses are often long-time family members or friends. In the event of a dispute, these relationships can complicate the normal cessation of business. The dollar and the penny give way to jealousy, resentment, anger and other emotions.. . . .