Closely Held Business Law

February 3, 2025

Unilateral Decision to Fund LLC is Breach of Fiduciary Duty, Court Says

Advances or capital contributions made to a limited liability company without authorization may be a source of conflict.
Using unauthorized advances or capital contributions as a means to exert control may be a breach of fiduciary duty.
A well-drawn operating agreement addresses how and when the owners put additional money into a limited liability company.

Advances made by a member to a limited liability company can lead to disputes among the owners. Is the payment a capital contribution, an advance, or an interest-bearing loan? Was it authorized?

Payments made by one member in a three-brother limited liability company were at the core of a dispute over control of the finances of two LLCs that led to the expulsion of one brother and forfeiture of nearly $300,000 in unilateral payments made by the dissociated member.

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Cropped image of lawyer showing evidence he found in papers to coworker

The payments were not the subject of any agreement, the court held, and therefore were neither capital contributions nor loans or advances. And therefore, the court held there was no basis to find that the companies simply keeping the money was inequitable.

The court applied much the same approach to approximately $125,000 that was claimed by the dissociated member for unpaid compensation, again reasoning that there was no contract in force and that the dissociated member was not entitled to be paid during the time that he was in breach of his fiduciary duties.

Member Who Made Unauthorized Advances is Expelled from LLC

This case, decided by the Vermont Supreme Court, is interesting not so much for its take on the law of limited liability governance—it breaks no new ground here—but for the way in which it applied basic principles of contract and agency law.

It’s a cautionary tale for any member that puts money into a jointly owned business. Make sure there is agreement among the owners on how it is to be treated—preferably in writing—and do not act unilaterally.

December 18, 2024

Navigating Shareholder Disputes in Closely Held Corporations

by Jay R. McDaniel, Esq.

Shareholder disputes in a closely held business threaten the business and personal financial interests of the owner.
New Jersey law provides the owners of a closely held corporation with rights and remedies that assure access to information and the financial benefits of ownership.
Closely held corporations can use effective planning and negotiated solutions to avoid litigation.

Shareholder disputes are often disruptive, emotional, and, if left unresolved, devastating to the closely held corporations that are the backbone of New Jersey’s economy. When these disagreements arise in a closely held business with only a handful of key stakeholders, they can escalate quickly, placing the company’s operations — and the personal futures of the owners — at risk.

Shareholder Disputes: It Isn’t Just Business, It’s Personal

Shareholder disputes aren’t just about financial disagreements. They often stem from deeply personal frustrations, competing visions, or the inherent complexity of running a business in which power and resources are shared by a few individuals.

New Jersey Shareholder Disputes Attorney | Minority Oppression Attorney New Jersey Corporation Whether the conflict involves voting deadlocks, allegations of unfair treatment, or disagreements over financial management, the stakes are high for all involved.

Understanding the common causes of these disputes—and the legal remedies available—can make the difference between a resolution that preserves the business and a breakdown that leads to its dissolution.

The Common Causes of Shareholder Disputes

Every closely held corporation is unique, but the disputes they face tend to follow familiar patterns. Recognizing these common issues is the first step in addressing them effectively. Continue reading

September 30, 2024

Protect the Intagible Assets of a Closely Held Business with Bulletproofing

by Jay R. McDaniel, Esq.

Intangible assets are typically the most valuable possession of a closely held business, but often are poorly protected.
Risk mitigation through a business bulletproofing process can protect those assets from being misappropriated.
Intangible assets include customer relationships and intellectual property.

I sometimes ask closely held business owners if they lock the doors to their business when they leave. The answer is ‘of course.’ I may push further. Do you have an alarm system? What about at home?

No surprises here. Everyone locks the door. Most have alarms. My follow-up question is ‘for what?’ The answer, again, is obvious. We lock doors to prevent thieves from stealing our stuff. Then why do so many of us do nothing to stop thieves from stealing what is commonly the most valuable asset of our businesses? Risk Mitigation through Business Buletproofing

Bulletproofed Businesses are Protected Against Theft of Intangible Assets

So many closely held business owners protect themselves against the theft of office equipment, but leave the doors wide open and invite thieves to help themselves to their most valuable property—those intangible assets that drive sales and efficiency.

The value of these assets is rarely reflected on our company’s balance sheet. Instead, the value is found in the knowledge and skills of our employees, the relationships we have with customers, and the reputation we have built in the market.

I am a lawyer, a certified valuation analyst, and a certified exit and succession planner. I have worked with the owners of closely held businesses throughout my career.

Contact me if you have questions about valuing your business, developing an exit plan, or implementing the legal bulletproofing necessary to protect your investment.

Many closely held business owners have no clear idea of the value of their intangible assets and are badly misinformed about what can be protected and how that is done. I am surprised how often my clients think they there is nothing they can do, and how little importance they give to writing down what they have. Continue reading

Advances or capital contributions made to a limited liability company without authorization may be a source of conflict.

Using unauthorized advances or capital contributions as a means to exert control may be a breach of fiduciary duty.

A well-drawn operating agreement addresses how and when the owners put additional money into a limited liability company.

Member Who Made Unauthorized Advances is Expelled from LLC

Shareholder disputes in a closely held business threaten the business and personal financial interests of the owner.

New Jersey law provides the owners of a closely held corporation with rights and remedies that assure access to information and the financial benefits of ownership.

Closely held corporations can use effective planning and negotiated solutions to avoid litigation.

Shareholder Disputes: It Isn’t Just Business, It’s Personal

The Common Causes of Shareholder Disputes

Intangible assets are typically the most valuable possession of a closely held business, but often are poorly protected.

Risk mitigation through a business bulletproofing process can protect those assets from being misappropriated.

Intangible assets include customer relationships and intellectual property.

Bulletproofed Businesses are Protected Against Theft of Intangible Assets