|
...negotiations commence, continue, then fall apart. Personal goals and ideas about business strategies, together with heavy doses emotion, typically dominate decisionmaking. Parties can go to the mats, so to speak, and dwell in litigation for years.
The Landscape of Conflict
In these cases, one or more of the parties will most assuredly have a self interest as well as responsibilities and duties that are commonly thought to be owed to other involved parties. For example, an officer owes duties to a corporation and its stockholders. (1) Likewise, a majority stockholder owes duties to minority stockholders. (2)
We can assume, for the sake of analysis, a typical case occurs when a president of a business is a minority shareholder with concerns about the value and realization of her stockholder interests and career security. She is a director as well. The majority shareholder is somewhat removed from the business. Like the president, the majority shareholder wears multiple hats, serving as chairman of the board and as a director. The majority shareholder has a sister working for the company, who is also a director.
For purposes of our discussion, we assume the parties have worked to sell the company to a third-party, larger organization. Midway through negotiations, the possibility of an outright sale falls apart. The third party wants to purchase; however, given the president's knowledge and expertise of the business, he wants a continuing commitment from the president to stay on as chief executive officer and minority shareholder. In principle, but with reservations, the chair agrees to this format for the deal. The sister objects and stalls. She wants a complete buyout or, perhaps, wishes to carry on a family dynasty. She believes the deal on the table for the president is too rich. Ultimately, the third party threatens to walk and losses loom on the horizon.
This case presents a complex situation for the sister as director; the president as president, director, and minority shareholder; and for the majority shareholder as chair and a director. First, as to the sister, presumably her brother will go along with her wishes. But is she then exposed to liability to the president/director? And, importantly, if the company starts to default on obligations, will she have liability to the company and ultimately through the company to bankers and creditors? The president is likewise concerned. Does she have a conflict with the deal proposed, especially with her boss, the majority shareholder? Can the majority shareholder unilaterally reject the deal given the minority position of the president? How do each of these parties, who are ostensibly and candidly looking after their own interests, but who also have responsibilities to the company as a whole, carry out their own interests and also properly exercise whatever responsibilities they owe to the other parties and to the company?
Various Roles, Attendant Duties, and Exposure to Liability
Solutions may ultimately turn on duties the parties owe each other and the corporation. Director duties are good to examine for overall illustrative purposes.
Under common law, directors owe fiduciary duties. (3) Their duties at common law require loyalty, good faith, and due care in the form of acquisition and...
NOTE: All illustrations and photos
have been removed from this article.
More articles from Florida Bar Journal
Withhold of adjudication: what everyone needs to know.(Florida), February 01, 2008
Judgment liens on real property: recent decision causes uncertainty fo..., February 01, 2008
Ins and outs: the taxation of imports and exports in Florida., February 01, 2008
Partitioning real property in dissolution of marriage actions and suit..., February 01, 2008
"Family responsibility" discrimination: the EEOC weighs in on unlawful..., February 01, 2008
Looking for additional articles?
Search our database of over 3 million articles.
Looking for more in-depth information on this industry?
Search our complete database of Industry & Market reports by text, subject, publication
name or publication date.
About Goliath
Whether you're looking for sales prospects, competitive information, company
analysis or best practices in managing your organization,
Goliath can help you meet your business needs.
Our extensive business information databases empower business
professionals with both the breadth and depth of credible,
authoritative information they need to support their business
goals. Whether it be strategic planning, sales prospecting,
company research or defining management best practices -
Goliath is your leading source for accurate information.
|
%20%20&position=1)