Invest With Caution: Top 10 Checklist For Investors Purchasing Interests in Private Companies

Invest With Caution: Top 10 Checklist For Investors Purchasing Interests in Private Companies

November 18, 2019

The private company marketplace has become increasingly attractive to investors as the number of opportunities for investment has vastly expanded. There are approximately 6 million companies in the US, but less than 1% are publicly traded on a national stock exchange and more than 85% of businesses with more than 500 employees are privately owned. The attraction for investors is that private companies hold the potential to yield robust financial returns due to the fact…

ETP v. Enterprise: Texas Partnership Created by Conduct — A Dog That Won’t Hunt

November 4, 2019

Following Supreme Court arguments last month, the final chapter in the long-running legal battle between Energy Transfer Partners LP (“ETP”) and Enterprise Products Partners (“Enterprise”) is finally coming to an end. ETP is requesting the Texas high court to reinstate the $535 million judgment it obtained after a jury trial against Enterprise in 2014. The case presents critical issues regarding the manner in which a Texas partnership can be formed, and the importance of these…

Tricks Not Treats: Good Faith Promises to Perform Don’t Hold Up in Shareholder Buy/Sell Agreements Under Texas Law

October 14, 2019

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Minority investors who purchase an ownership interest in a private Texas company are advised to secure an exit strategy confirmed in a Buy/Sell Agreement at the time they make their investment. But investors who look closely at the specific terms of their Agreement may find that the contract contains an unwelcome surprise if it includes “good faith” obligations that have been accepted by the majority owner or by the company. While good faith may sound…

Shareholder Oppression Claims: Looking Past the Urban Myth to Remedies that Continue to Survive Under Texas Law

October 1, 2019

Many Texas lawyers and their private company clients continue to refer to the claim for shareholder oppression as if it remains a viable cause of action under Texas law. And yet, for all practical purposes, the claim for minority shareholder oppression met its demise more than five years ago in 2014 in Ritchie v. Rupe[1]. In this landmark decision, the Texas Supreme Court held that a court-ordered buyout of the minority owner’s interest in a…

Reps & Warranties Insurance: A Game Changer for Business Owners Providing the Opportunity for a Virtually Risk-Free Sale of the Company

September 9, 2019

By Ricky Torlincasi and Ladd Hirsch Historically, the sale of a private company carried with it a significant risk of claims by the purchaser. Months or even years after the sale closed, purchasers would frequently contend that the seller’s representations and warranties in the purchase agreement had been breached. This claim would support demands by the purchaser for the seller to forfeit some or all of the purchase price held back in escrow, and give…

Making the Right Choice: The Obligation to Comply With Fiduciary Duties By The Directors, Managers and Officers of Private Texas Companies

August 27, 2019

By Kelly Knotts and Ladd Hirsch Fiduciary. The term applies broadly to cover all types of companies, as well as spouses in marriage, and is defined as “of, relating to, or involving a confidence or trust.” In the private business context, the company’s shareholders or members trust that their directors, managers and officers will make good faith decisions and act with loyalty to the business. When company leaders breach this trust and violate their fiduciary…

Just in Time For Summer: The Freeze-Out Merger, A Legal Option Available to SOME Majority Owners of Privately-Held Texas Companies

August 5, 2019

By Zack Callarman and Mark Johnson Our previous posts have stressed the critical importance of buy-sell agreements for both majority owners and minority investors in private companies (Read here). For majority owners, securing a buy-sell agreement avoids the potential of becoming “stuck” in business with a difficult co-owner without the ability to force a buyout of this minority investor’s ownership stake. For at least some majority owners of private Texas companies, however, another…

Can the Golden Goose and Its Eggs Be Shared: Resolving Conflicts Between Private Company Co-Founders

June 24, 2019

The fact of the matter is that co-founders spend most of their time fighting . . . But no one talks about it. Los Angeles venture capitalist Mark Suster. (Fighting Co-Founders Doom Startups) Setting up a private company on a 50-50 owned basis is typically a bad idea, but many founders of new businesses continue to embrace this perilous ownership structure. We wrote last year about problems that plague 50-50 owned businesses (…

Partnership Blues: Can a Bad Business Partner be Removed by the Company’s Majority Owner When No Buy-Sell Agreement Exists?

June 10, 2019

As we noted in a previous post (Read Here), the disruption and dysfunction caused by a bad business partner who holds a substantial minority stake in the company can lead to the ultimate failure of the business.[1] This is especially true when the company founder has no buy-sell agreement in place that will allow him/her to redeem the minority investor’s interest in the company. When the majority owner has no contract right…

Family Law Post–Maximizing Private Company Value in Divorce: Achieving a Successful Business Divorce When the Marriage Fails