Illinois corporation stockholders and shareholders beset by Board of Director Deadlocks or Stockholder Deadlocks have a powerful tool to resolve corporate deadlocks that Courts can avail themselves of; Illinois statutes 805 ILCS 5/12.56.  As part of a Court’s powers to resolve corporation deadlocks under the Illinois Business Corporation Act (BCA) a Court may “take into consideration the reasonable expectations of the corporation’s shareholders as they existed at the time the corporation was formed and developed during the course of the shareholders’ relationship with the corporation and with each other”. Using this provision, the court in Gingrich vs. Midkiff No. 5-08-0359 June 15, 2010 imposed a covenant not to compete (non compete provision) where there was none in the documents signed by the parties.

For more information on deadlocks, shareholder disputes, or other corporate law concerns, contact Horowitz & Weinstein.

Disclaimer.

When one seeks to value the stock of closely held corporations the natural inclination is to “get an appraisal”.  According to the Illinois Business Corporation Act an appraisal is one way to value a shareholders stock holding in small corporations yet not the only way. Section 805 ILCS 5/12.56 of the Illinois BCA (Business Corporation Act) allows a court to value a stockholders stock value by means other than appraisals.  The provision provides in part:  “(e) If the court orders a share purchase, it shall: (i) Determine the fair value of the shares, with or without the assistance of appraisers, taking into account any impact on the value of the shares resulting from the actions giving rise to a petition under this Section. For purposes of this subsection (e), “fair value”, with respect to a petitioning shareholder’s shares, means the proportionate interest of the shareholder in the corporation, without any discount for minority status or, absent extraordinary circumstances, lack of marketability.”

This provision provides several areas of contrast to the natural inclination.  For example, the phrase “fair value” is not necessarily “fair market value”.  Moreover in the absence of an appraisal, Courts have valued the stock of a family corporations or closely held corporations by using a combination of earning capacity, investment value, history and nature of the business, economic outlook, book value, dividend paying capacity, and market price of stock of similar businesses.  Even if one argues these criteria are inherently built into a corporation stock appraisal and therefore clouds the difference between “fair value” and “fair market value” the Courts are allowed to take into consideration “the reasonable expectations of the corporation’s shareholders as they existed at the time the corporation was formed and developed during the course of the shareholders’ relationship with the corporation and with each other.” If every appraisal were to factor in the “reasonable expectations of the corporation’s shareholders as they existed at the time the corporation was formed” then the shares of almost every corporation would be “priceless”.

For more information on valuations or other corporate law concerns, contact Horowitz & Weinstein.

Disclaimer.

On the level of the individual, a fairly effective way to sum up US law would be “majority rule with protections in place for minority interests.”  Thus we have the Bill of Rights, the Civil Rights Act, etc. The world of corporate law looks a little different.  There majority rules and protections for minority interests are minimal.

By far the most commonly used and arguably one of the most powerful avenues of defense for the minority interest in a shareholder dispute or any other kind of squeeze play lies in the concept of fiduciary duty.  Fiduciary means having an obligation to act in someone else’s best interest.  It’s a word with numerous legal applications but in the context of a shareholder dispute, it generally refers to the responsibility of a corporate board to act in the best interests of the corporation and of the shareholders.  This would also apply in partnerships.

A squeeze out is a somewhat informal term for what happens when a person or persons which together have a majority interest in a business try to convince or coerce a minority interest to sell their control.  There are numerous means by which the majority party can try to accomplish this, everything from intentionally devaluing shares to denying dividends to rescheduling shareholder meetings with minimal notice.  In most cases, recourses for the oppressed minority are few.

But the concept of fiduciary duty can prove an effective defense.  There’s no clear cut line here, no sharp divider between legal and illegal.  Every case will be different.  But in general principle, if an oppressed minority can show that the majority’s actions are not in the best interests of the company as a whole, it is possible to resist the squeeze play.

Again, every case is unique and as such it’s not only difficult but quite unhelpful to get too much into broad, general statements.  The best avenue for any party in a squeeze out, shareholder dispute, or partnership freeze out scenario is to seek professional counsel.

For more information on shareholder disputes, fiduciary duty, minority oppression, or other corporate law concerns, contact the Chicago corporate lawyers at Horowitz & Weinstein.

Disclaimer.

It’s an unfortunate but true fact of corporate life that shareholders don’t always see eye to eye.    Disagreements can escalate to conflicts.  A common occurrence when shareholders fight is for the majority to try to coerce the minority, mainly to try to get them to sell or give up their shares.  There exist any number of reasons why a majority shareholder might seek to oust a minority–although greed or lust for power probably jump to mind, usually the motivations boil down to a business decision–but whatever the reason behind it, when the majority tries to force out a minority shareholder, it’s called a squeeze out.

While the Constitution makes provisions to preserve the rights of minority party’s against any possible tyranny of the majority, in the corporate world few such safeguards exist.  There are numerous strategies a majority shareholder can undertake to try to force a minority shareholder to sell.  In many cases the squeezed party has far fewer options.

The weapon of choice (legally speaking) for most targets of squeeze play looking not to go down without a fight lies in the idea of fiduciary duty.  Although there’s nothing in corporate law that requires minority shareholders be defended as such, all members of a corporate board have a fiduciary duty, that is they are required to act in the interests of the company at large.  The standard defense against squeeze play is thus to argue that the squeezer is acting not in the best interests of the company but for his or her own personal advantage, perhaps at the expense of the overall wellbeing of the company.

Every squeeze out situation is different and shareholder disputes are rarely simple.  For more information on shareholder disputes, minority oppression, squeeze play or other corporate law concerns, contact the Chicago corporate attorneys at Horowitz & Weinstein.

Legal Disclaimer.

Purchasing a business can unfold in several different ways.  In general, some forms favor the seller, others the buyer, and in most business entity purchases and sales each party generally wants to pursue the method that most favors them.

Sellers often prefer to sell stock or LLC membership interest.  Most of the tax advantageous in such a process will favor the seller.  Buyers generally prefer to purchase assets.  This is often advisable to help the buyers avoid any “skeletons” or legal baggage.

We have represented both buyers and sellers in business entity purchase and sales.

Please contact us for more information.

Legal Disclaimer.

Shareholder agreements go beyond the provisions contained in most corporate bylaws and minutes.  They are recommended for most small corporations to help provide structure in common issues such as salaries of shareholders who are also employees; expense reimbursements; providing a structure in the event a shareholder is no longer an employee; providing a structure in the event a shareholder wishes to exit the corporation; as well as other relationships between shareholders.

We have draft and review shareholder agreements.  When a shareholder dispute arises we look to shareholder agreements as one of the starting points to determine the rights of our client.

Please contact us for more information.

Legal Disclaimer.

There are plenty of reasons why a company based outside the United States might want to enter the US market.  Whatever the motivation behind it, the actual process of establishing a US presence can be complicated and failure to plan appropriately can expose a company to significant tax burdens or other negative consequences.  It’s always advisable therefore, when looking to make a move into the US, to plan ahead and to ask the experts.

There are generally three main methods of entering the US market: opening a branch office, creating a US subsidiary, and partnering with an existing US corporation.  In broad strokes, these options represent a trade-off between exposing your business to US taxes and retaining control over the distribution of your products and services.  Opening a branch, for example, gives you the most direct control over your US operations but also entails the highest tax burden.  Likewise partnering with a US company reduces your tax exposure  but also lessens your control over your operations in the US.

The most important thing to remember when considering a move into US markets is that every company will have a different situation, and the particulars of your company will affect which method is most beneficial.  Horowitz & Weinstein have represented many foreign companies and helped them enter US markets.

For more information on bringing foreign business into the US, or for other corporate law concerns, contact the Chicago corporate attorneys at Horowitz & Weinstein.

Legal Disclaimer.

With the debt ceiling raised and the beginnings of a compromise on dealing with the long term US debt laid down–and thus far, these plans do not include any of the rumored tax changes such as the elimination of the AMT fix–the world of tax has turned its focus back to the issue on online sales tax.

California has joined the roster of states to institute its own version of New York’s 2008 affiliate tax law.  The addition of California is particularly significant because New York and California tend to be trend setters among states.  Laws often start in one of those states and eventually spread to whole of the union.  To have both of these big names behind the online sales tax discussion will likely add impetus to the conversation.

It was first mentioned back in April, but now Senator Dick Durbin (D-IL) has finally submitted his Main Street Fairness Act, which would allow states to charge sales tax to online retailers like Amazon and also on mail order retailers, both of which can currently avoid paying sales tax in states where they do not have a brick and mortar presence.

The Act achieves this through something first proposed in 2002, the Streamlined Sales and Use Tax Agreement (SSUTA).  SSUTA has been previously endorsed by Amazon and other online retailers.  It is an agreement states voluntarily join.  They agree to common sales and use tax rules and in exchange they gain the power to charge sales tax on online and other out of state retailers. Currently, the sales tax systems in the country vary wildly state to state.

At present the Act has been submitted to the Senate and a counterpart is in the House.

For more information on sales tax, use tax or other tax related legal concerns, contact the Illinois tax attorneys at Horowitz & Weinstein.

Disclaimer.

On the level of the individual, a fairly effective way to sum up US law would be “majority rule with protections in place for minority interests.”  Thus we have the Bill of Rights, the Civil Rights Act, etc. The world of corporate law looks a little different.  There majority rules and protections for minority interests are minimal.

By far the most commonly used and arguably one of the most powerful avenues of defense for the minority interest in a shareholder dispute or any other kind of squeeze play lies in the concept of fiduciary duty.  Fiduciary means having an obligation to act in someone else’s best interest.  It’s a word with numerous legal applications but in the context of a shareholder dispute, it generally refers to the responsibility of a corporate board to act in the best interests of the corporation and of the shareholders.  This would also apply in partnerships.

A squeeze out is a somewhat informal term for what happens when a person or persons which together have a majority interest in a business try to convince or coerce a minority interest to sell their control.  There are numerous means by which the majority party can try to accomplish this, everything from intentionally devaluing shares to denying dividends to rescheduling shareholder meetings with minimal notice.  In most cases, recourses for the oppressed minority are few.

But the concept of fiduciary duty can prove an effective defense.  There’s no clear cut line here, no sharp divider between legal and illegal.  Every case will be different.  But in general principle, if an oppressed minority can show that the majority’s actions are not in the best interests of the company as a whole, it is possible to resist the squeeze play.

Again, every case is unique and as such it’s not only difficult but quite unhelpful to get too much into broad, general statements.  The best avenue for any party in a squeeze out, shareholder dispute, or partnership freeze out scenario is to seek professional counsel.

For more information on shareholder disputes, fiduciary duty, minority oppression, or other corporate law concerns, contact the Chicago corporate lawyers at Horowitz & Weinstein.

Disclaimer.

When business owners separate, when shareholders “divorce,” the term squeeze out is sometimes applied to the dispute.  Specifically, a squeeze out occurs when majority shareholders try to get at the shares of the minority.  There are numerous complexities and facets to minority oppression and shareholder disputes.

We have represented businesses and individuals on both sides of squeeze play in a variety of situations.  Our chief civil litigator is former New York Assistant District Attorney Samuel “Sam” Neschis.

Please contact us for more information.

Legal Disclaimer.