When reading a recent New Jersey court’s opinion regarding an employee of an LLC claiming to have been given a share of ownership of the company by its sole owner, I couldn’t help but think of method acting – the technique in which “an actor aspires to encourage sincere and emotionally expressive performances by fully inhabiting the role of the character.” (Cite). Dustin Hoffman, Heath Ledger and Daniel Day-Lewis all used method acting…

I recently covered whether parties can be liable for a claim of aiding and abetting breach of fiduciary duty in Pennsylvania. In that post, I explained the two different frameworks for these claims that have been established by Pennsylvania courts. Both contain a knowledge requirement. One framework requires “knowledge of the breach by the aider and abettor.” The other requires that the alleged aider and abettor “knows that the other’s conduct constitutes a breach of…

The American Law Institute recently announced its plans to draft a Restatement of the Law of Corporate Governance. (https://www.ali.org/projects/show/corporate-governance/#_participants). This is ALI’s second attempt at such a restatement. Stephen Bainbridge, a professor at the UCLA School of Law and a widely respected voice on corporate governance, pejoratively describes the first effort in the early 1990s as legislative sausage making, marked by pointed conflict among academics and practitioners. (https://www.professorbainbridge.com/professorbainbridgecom/2020/10/the-american-law-institute-is-going-to-try-writing-a-restatement-of-corporate-governance-again-oh-jo.html). Ultimately, the restatement…

In Pennsylvania, can you be liable for someone else’s breach of their fiduciary duty to a co-owner of a closely held business if you knew about the breach, were somehow involved with it, and assisted or encouraged that person’s breach? Section 876 of the Restatement (Second) of Torts addresses the civil tort (but not the criminal act) of “aiding and abetting.” The Pennsylvania Supreme Court has never expressly adopted the tort, but both the Pennsylvania…

When two or more people become owners of a limited liability company and embody their relationship in an operating agreement, they usually see sunshine and rainbows in their future. They have an idea, they have a corporate structure, and they have each other. But there comes a point in the life of many a multi-member LLC where that sunshine and those rainbows from the early days turn into a large stop sign. Disagreements about some…

Many transactional attorneys view the fiduciary duties that flow from those in control of a company—officers, directors, managers, general partners and majority shareholders—to those not in control to be a nuisance because of the uncertainty they introduce into corporate transactions. To these attorneys, those duties are particularly problematic in the context of limited liability companies, limited liability partnerships and similar non-corporate entities because their contours are less defined than in a traditional corporation. This uncertainty…

You represent a minority shareholder of a closely-held corporation and the company is having an off year. The majority shareholder is the sole member of the board and serves in every officer position. She draws significant compensation. Without a business justification, she unilaterally decides to double her salary and have the company pay the mortgage on her vacation home. Your client is the only other shareholder and likely the only person hurt by the majority…