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  • When one partner fails to respond to a notice of breach from the other partner, the relationship may be so damaged that dissolution is required.

  • Courts may apply the ‘not reasonably practicable’ standard in determining whether a business can continue in its present form.

  • The ‘not reasonably practicable standard’ is incorporated in the partnership statutes of most states.

An appellate court orders the dissolution of a general partnership after taking up the question of what exactly the statutory standard of “not reasonably practicable” means for the second time in a reported opinion.

The issue of what it means for particular conduct or circumstances to make it “not reasonably practicable” isOcean_Resort_Casino_-_Atlantic_City_01 often a critical issue in business divorce cases. We see it in both in judicial dissolution cases and in those states that permit judicial expulsion (i.e., dissociation) of owners.

Yet, the case law excamining the contours of the reasonably practicable is sparse, relatively speaking, despite the fact that the standard is applied in the limited liability company and partnership laws of most states.

AC Ocean Walk, LLC v. Blue Ocean Waters, LLC, the Appellate Division affirmed the judicial dissociation of Blue Ocean Waters, LLC from its partnership with AC Ocean Walk, LLC, and the subsequent dissolution of the partnership.

The court affirmed the lower court’s decision that Blue Ocean Waters’ failure to respond to a notice of breach constituted grounds for judicial dissociation under the Revised Uniform Partnership Act (RUPA) as adopted in New Jersey. Continue reading

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  • Exit planning describes the process of preparing a closely held business for the exit of its owners at its maximum value. It is the preparation and implementation of a plan that maximizes the current and future value of the business. 

  • Exit planners help owners understand the true value of their business today and what its potential value will be at the time of sale.

  • Most business owners seeking to sell their business will not find a buyer.  Exit planning vastly improves the marketability of the business and captures the most value for the owners. 

Succession and exit planning assure that the closely held business owner can maintain and preserve the financial and social legacy of their company, whether the goal is to retire, move to another venture, or simply reduce the need for day-to-day involvement in running the operation.

Studies indicate that 75 percent of private business owners would like to exit their business within the next 10 years.   2023 National State of Owner Readiness Report.  Closely held businesses are typically family-owned or controlled and most of the owners of those businesses favor passing the business to the next generation.  An effective exit plan will usually require three to five years to plan and implement.

Exit Planning Using Proven Strategies and an Extended Network of Professionals

Exit Planning Advisors

The Exit Planning Institute (EPI) has developed a comprehensive, multidiscipliary framework for developing a robust exit strategy, focusing on maximizing value, ensuring business continuity, and preparing for the future. EPI’s network of Certified Exit Planning Advisors (CEPAs) includes lawyers, wealth consultants, insurance advisors, merger and acquisition firms, family business consultants, accountants, and management firms.

CEPA_Transparent-Background-1-300x84A CEPA has access to this network of professionals, in and out of EPI’s network of advisors, and a thorough understanding of a proven strategy for business value enhancement that can increase the value of some businesses by 2–8 times when implemented.

Exit plans provide the framework that enables owners to step back from their day-to-day responsibility for their closely held enterprise.  This process of transferring the day-to-day oversight to others not only enables a seamless transition that safeguards the owner’s legacy and financial security, but it also gives the owner a level of persona freedom that many have never experienced. Continue reading

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  • Arbitration agreements survive the termination of an underlying contract, unless the parties specifically terminate the arbitrate provision.

  • In disputes involving closely held businesses, the arbitration agreement may be invoked even if the business is no longer in existence.

  • Unless there is a specific agreement on the question of ‘arbitrability’ of a dispute, it is an issue for a court to decide, not an arbitrator. 

We are often asked to prepare an amended and restated operating agreement or contract.  Or, more often in my case, we are representing a party in a dispute between two parties over a second or third version of an agreement.

No one says a word about arbitration.  Do we need to go back and determine whether any of the old agreements had an

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arbitration provision?  Is it enough that the second contract contains a standard integration clause that merges all prior negotiations and agreements into the final document? Probably not.

Survival of Arbitration Agreements in LLC Operating Agreements

Arbitration agreements do not just go away.  They survive the termination of an agreement and may even survive when that agreement was terminated because the parties negotiated a new or different deal.  If the parties want the agreement to arbitrate to end, they had better agree and put that decision in clear and unequivocal writing. Continue reading

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  • The application of a control premium more than doubled the claimed value of a business purchased its employees through and ESOP

  • An investment banking firm involved in the transaction is subject to claims that it was biased because the fee it earned was contingent on the purchase price.

  • The valuation firm that conducted the annual valuation required by federal regulations faces claims that it was not independent.  

A valuation that applied a control premium to shares acquired by an Employee Stock Ownership Plan (ESOP) would have inflated the value of the now-bankrupt company by as much as 61 percent, according to the plaintiffs in an action against the trustees of the ESOP, its investment bank and the firms that valued the business.

In a case heard by the Seventh Circuit Court of Appeals, the plaintiff’s claims of breach of fiduciary duty and engaging in prohibited transactions under the federal Employee Retirement Income Security Act (ERISA) were upheld even though the defendants wanted to dismiss the complaint. This was because the plaintiff sufficiently alleged wrongdoing in the valuation of the business.

ESOP Owning Bankrupt Company Sues Over Value Reports

The Seventh Circuit Court of Appeals in Appvion Inc. Retirement Savings and Employee Ownership Plan v. Butha held that the plaintiff’s claims for ERISA violations related to the valuation of theA valuation that applied a control premium to shares acquired by an Employee Stock Ownership Plan (ESOP) would have inflated the value of the now-bankrupt company by as much as 61 percent, according to the plaintiffs in an action against the trustees of the ESOP, its investment bank and the firms that valued the business. business after 2012 would proceed.

The gist of the plaintiff’s claims in the lawsuit is that employees approved the acquisition of the stock of the company based on the flawed valuation presented by an investment banking firm that received a contingent success fee of more than $8 million and that the annual valuations of the company were inaccurate and misleading.

Continue reading

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  • An arbitration clause in a is unlikely to be enforceable against a beneficiary unless there was to consent to arbitrate; it is unlikely to be inferred from the will alone.

  • An arbitration clause imposed as a condition of accepting the benefit of a trust is more likely to be enforced once the beneficiary has accepted the benefit of the trust.

  • A demand for a formal accounting is not considered a challenge to a will or testamentary trust.

Can a will impose an agreement to arbitrate on the beneficiaries of the estate?  And if the will can make that condition, will it apply to a demand that the executor provide an accounting of what is in the estate?  That was the question presented in a dispute involving the beneficiary of a “substantial” estate left by real estate developer Samuel Hekemian, who died in 2018.

4890273230_276075c0c4_c-1Hekemian’s will established several trusts and contained an arbitration clause in the event of disputes. After one of his son’s sued to compel an accounting, the co-executors, son Peter Hekemian and attorney Edward Imperatore, sought to compel arbitration under a provision in his Last Will and Testament (referred to by the court as the LWT).  The effort failed.  The Appellate Division in an unreported decisions, Matter of Estate of Hekemian affirmed, holding that there was no binding agreement to arbitrate and that it was inconsistent with the specific and detailed authority given by statute to courts to oversee the probate process. Continue reading

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  • The fiduciary duties of loyalty and care may be different when a partnership is involved, rather than a corporation.

  • The duties that shareholders in a corporation owe to each other are different than those owed in a partnership.  Shareholders have more discretion to consider their own interests first. 

  • Understanding the duties owed by those in a business is important to avoid liability to business partners

This fight between accountants in practice together demonstrates the different ways that courts will look at corporations on the one hand and partnerships, an entity that the what the law calls an unincorporated business association.  Limitied liability companies are also unincorporated business assocations.

The case is also another lesson in the course: Bad Things Happen to People Who Don’t Bother with Contracts When They Start a Business with Others.

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Fiduciary Duties Owed Between Partners

The takeaway from this case is that the duties that shareholders owe to each other are different from the duties that partners and LLC members owe to each other. That is not to say that there are no duties between shareholders in a closely held corporation, but those duties are not presumedto exist.  They have to be proven from the circumstances.  We will discuss some of the differences as we go through the details of the case.

Why does this matter?  Because understanding the duties owed by those in a business is important to understanding the rights and liabilities of those involved, Those who have fiduciary obligations are personally liable when they ignore these duties.  And those who are owed the fiduciary duty have a right to hold the fiduciaries responsible.

Accounting Partnership Dissolves

This dispute between the accountants turned into a lawsuit. The combatants were involved in Forward LLP, a poorly documented accounting partnership. Kristina Edwards and Sean Forman were locked out of the business, but they went to court and got temporary restraining orders (TROs) by the trial court.

These allowed them to get back to using  Forward software, email, Google Drive, and client files and communications at the outset of the case. The defendants appealed that decision and lost.

The case we are looking at is from the California Court of Appeals, Edwards v. Forward, but the legal principles here will apply in most states, including New York and New Jersey, where I practice. Continue reading

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  • Understanding the valuation of the business is critical to the owners of closely held business in planning and management.

  • Closely held business owners typically have most of their personal wealth tied up in their company, but rarely know the current value of the enterprise. 

  • Current valuation data is important for strategic planning, dispute avoidance, insurance purchases and tax compliance.

Business Valuation for Closely Held Business Owners

Understanding the value of your business is critical to the management and operation of a business, to protecting the value of the business, and to planning for the future. Many owners see valuation as an issue that you need to look at at certain stages in the life of the business—wwhen someone dies or gets divorced, when it’s sold, or when there’s a tax issue.

That value, however, doesn’t consider other, crucial reasons why valuation is necessary for the business owner. The reasons are both defensive and offensive. For example, you cannot know how much insurance you need for your business if you’re just guessing about what it’s worth. You need this information for the defensive purpose of protecting your investment.

Offensively, business valuation is a strategic tool that offers insight, guides decisions, and uncovers opportunities for growth.

Business owners, on average, have about 80 percent of their personal assets tied up in their businesses. But four in ten owners of closely held businesses have never had a formal valuation of their business done.  Many more owners do not have a clear picture of what the business is worth today. Continue reading

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  • Agreements that limit former employees from soliciting customers or disclosing confidential information are critical to protecting the value of a closely held business.

  • Restrictive covenants and non-compete agreements are difficult to enforce and must be carefully drafted to assure that they are enforceable. 

  • Closely held businesses should rely more heavily on contracts to prohibit solicitation and disclosures.

Restrictive covenants such as non-compete and non-solicitation agreements are vital to the stability of a closely-held  business. Let’s examine how these agreements can be used to protect the value in the most important drivers of value, the intangible assets in your businesses.

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Female entrepreneur in casualwear sitting at wooden table and signing contract after successful completion of negotiations with business partner, close-up shot

Intangible assets are things like intellectual property, customer relationships, and proprietary information. Businesses can prevent employees or rivals from misappropriating these assets by implementing  effective restrictive covenants.

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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.

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Securing these intangible assets is essential in the business world for preserving a competitive edge, achieving long-term success, and increasing a company’s worth.

Are Restrictive covenants Becoming Unenforceable?

The restrictive covenant, however, is under attack from a number of sources. They may be difficult to enforce and in some states unlawful. Continue reading

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  • Intangible Capital are the elements that define a company’s real earnings capacity and its value.

  • The Exit Planning Institute recognizes four intangile capitals in a business: human capital, structural capital, customer capital and social capital.

  • Intangible capital is closely tied to the intangible assets of a business, which commonly represents 80 percent of the value of a business.

We talk a great deal about how the most important assets of your business are those that can’t be seen or touched. I want to discuss something that exIt planners refer to as intangible capital. Intangible capital groups your intangibles into four classes that a business owner can identify, strengthen, and, in the process, grow their companies and make it more valuable.

Understanding Intangible Assets and Their Effect on Value

The most important and valuable assets of almost every business are the intangibles. They’re something that you can’t find on a balance sheet, but something that you need to understand, protect, and cultivate.

And they are critical to the business owner who is seeking to maximize the value of the business and who is planning an exit strategy.

Tangible assets are things like machinery, real estate, inventory, intangible assets, or things like intellectual property, patents, trademarks, copyright, brand recognition, customer relationships, goodwill, unique processes, and other kinds of proprietary technology. Continue reading

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It’s a decision involving a law firm partnership that, if widely followed, will likely have a sweeping effect on the interpretation of the statutory requirement for unanimity in adopting critical agreements that govern partnerships and liited liability companies.Lerner-David

Attorney Andrew Zidel, an attorney who left prominent intellectual property boutique firm Lerner David in Westfield, failed in his attempt to use a minority veto to block the adoption of a law firm partnership agreement that treated retiring partners differently than withdrawing partners.

The trial court finessed the unanimity requirement found in the partnership statute, and was affirmed in an unreported decision of the appellate division.

Court Discounts Literal Language of Partnership Statute; Implies Consent to Adopt Partnership Agreement

The reason for Zidel’s failure to rely on the language of the statute was that the law firm had, for many years, operated without a formal partnership agreement. Therefore, the trial court found that the written formal agreement would be considered an amendment to the existing partnership agreement, and, under the partnership’s prior practices, it did not require a unanimous agreement.

Continue reading

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Jay R. McDaniel, Esq.
(973) 602-3915
Weiner Law Group LLP
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629 Parsippany Road
Parsippany, NJ 07054
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New York, NY 10004
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