While family businesses offer the potential for shared success and intergenerational wealth, they also present unique challenges stemming from the complex interplay of family dynamics and business operations. One significant concern for minority shareholders is the risk of being unfairly excluded or even pushed out of the family business.
Below, the Houston business litigation attorneys at Feldman & Feldman P.C. explore the legal implications of such situations, examine your rights as a shareholder or partner, and discuss potential legal remedies available to you. Let’s examine what to do if you feel you’re being pushed out of the family business.
Identifying Signs of Being Pushed Out of the Family Business
If you’re a minority shareholder in a family business, you may experience subtle indications of marginalization or exclusion from the family business. These could look like outright pressure to sell your shares or something more subtle. These signs could include:
- Termination of Employment: If you’re an employee of the family business and your employment is suddenly terminated, it could be a tactic to pressure you to sell your shares.
- Changes in Family Dynamics: If your family disapproves of your marriage or divorce from a family member, this may be used as a pretext to marginalize you within the business.
- Low-Ball Offers for Shares: Majority shareholders often attempt to purchase minority shares at a significantly undervalued price. This is because minority shares in privately held companies typically have a lower market value compared to majority shares.
- Exclusion from Decision-Making: You may be systematically excluded from important business decisions, meetings, and information sharing.
- Denial of Benefits: You may be denied company benefits, such as health insurance or retirement plans available to other family members.
If you believe you are being pushed out of the family business, our experienced lawyers can help you determine the best course of action.
The Role of Outsiders
While external perspectives can bring fresh ideas and improve professionalism, they can also disrupt existing power dynamics and lead to resentment among family members. In addition, succession planning is a critical yet often challenging aspect of family business management. Yet, involving outsiders in succession plans can also trigger disputes, intense conflicts, and divisions within the family.
The family leader may feel pressure to put family members into leadership roles, even if they aren’t the most qualified people for the roles, leading to nepotism and favoritism. When appointments are based on family ties rather than merit, it could undermine the business’s performance. Bringing in outside management can be seen as a betrayal of family and tradition, creating significant fear and anxiety.
Family members may find it hard to adapt to professional management practices or changes, hindering the business’s ability to adapt and grow. In some instances, selling the family business can be a difficult but sometimes necessary decision. It ensures a fair share for all family members but may also signify the end of a family legacy, the loss of employment opportunities, and the potential disruption of long-standing family relationships.
What to Do If You Suspect You Are Being Pushed Out of the Family Business
It’s crucial to seek qualified legal advice if you suspect you are being treated unfairly or excluded from a family business. An experienced business attorney can listen to your family dynamics and business situation and then provide valuable guidance on how to proceed. They will help you explore potential legal remedies for this situation, whether ensuring your future in the family business or choosing to exit it with your fair share of the profits.
Attorneys will carefully review all relevant governing documents, such as shareholder and partnership agreements, which outline your rights and obligations, including voting rights, dividend rights, and the process for buying and selling shares. In many cases, majority shareholders have a fiduciary duty to minor shareholders. This means that they are legally obligated to act in the company’s and all shareholders’ best interests, including minority shareholders. An attorney can determine if these duties have been breached.
Identifying Potential Legal Violations Is Critical
Your lawyer will help you identify any potential legal violations if you have been excluded from the family business. In the case of a breach of contract, an attorney can help you pursue legal action against majority shareholders who violated the terms of any shareholder agreement.
In some cases, the majority shareholders’ actions may oppress minority shareholders’ rights or unfairly benefit the majority shareholders while harming the interests of the minority. In addition, if you believe there has been any fraudulent activity, such as misrepresentation of financial information or deliberate concealment of information, an attorney can investigate and pursue appropriate legal action.
Legal Remedies Available to You
Several legal remedies may be available even for a minority shareholder if you believe you are being treated unfairly and excluded from a family business. Discuss with your lawyer if any of these legal remedies may work in your situation:
- Fair Value Appraisal: A court can determine the fair market value of your shares, which is particularly useful if you believe the offer to buy your shares is significantly undervalued.
- Alternative Dispute Resolution (ADR): ADR methods, such as mediation, arbitration, and negotiation, can provide alternative avenues for resolving disputes that are cost-effective, efficient, and potentially less confrontational than traditional lawsuits.
- Lawsuits for Breach of Contract: If you can demonstrate that the majority shareholders have breached their fiduciary duties to act in the best interests of all shareholders, you may be able to file a lawsuit to recover damages resulting from their wrongful actions.
- Buy-Out Demand: In certain situations, minority shareholders may have the right to demand that the majority shareholders buy their shares at a fair price.
- Dissolution of the Business: In cases of severe mismanagement or actions by majority shareholders that irreparably harm the company, dissolution that liquidates the business and distributes proceeds among shareholders may be necessary.
You must document all instances of exclusion or mistreatment thoroughly by gathering emails, meeting minutes, financial records, and any other relevant evidence. You may wish to consult with multiple business attorneys to obtain a range of perspectives and legal opinions.
Communication May Resolve Family Business Disputes
Open and honest dialogue is crucial for addressing concerns, building trust, and finding mutually agreeable solutions. If you feel like you are being pushed out of the family business, you can start by expressing your concerns to your family members and articulate your desire to play a valuable role at the company. It is best to address these concerns in writing as this will document dates of your concerns, who was notified, and any reply or actions taken to resolve the conflicts.
Encourage open and active listening from all parties involved. Try to understand each other’s perspectives and acknowledge and validate their concerns. Focus on identifying shared goals and objectives for the family business and emphasize your desire to preserve family relationships while ensuring the long-term viability and success of the company.
If direct communication fails to resolve the issues, seeking external guidance can be invaluable. Your lawyer can help connect you with a neutral third party, such as a mediator, family therapist, or a family business consultant. Family business consultants are professionals trained to help families navigate the unique challenges of operating a family business. They can provide objective insights and help develop strategies for resolving conflicts and improving communication.
Trust Feldman & Feldman P.C. to Help With Family Business Disputes
Building a thriving family business is a testament to shared effort, dedication, and collective vision. Disputes and disagreements within family dynamics can disrupt this. If you feel like you are being pushed out of the family business, contact our Houston family business lawyers with over four decades of experience. Contact Feldman & Feldman today to schedule a consultation and explore how we can help safeguard your role in your family’s business.