Partnerships

October 26, 2022

Shotgun Buy-Sell Agreements – Solution to Deadlock

by Jay R. McDaniel, Esq.

Well-drafted business governance documents include buy-sell agreements to address deadlock among the owners.
A shotgun buy-sell is an offer that sets only the price. It can be accepted as either an offer to buy out the other side or to sell to the other side at the price in the offer.
Shotgun buy-sells are an efficient means to set the price of a transaction, but may be flawed when the owners have unequal knowledge of the business or inadequate financial resources.

What happens when the owners of a business can’t come to an agreement on an issue that is critical to the business? This happens when neither side has a majority. For example, when there are two 50-50 owners or when unanimous agreement is required and there are holdouts. Our discussion today concerns how the owners of a small business may use contractual arrangements to address this problem.

These contracts are known generally as buy-sell agreements, and that is that they require one party to sell and the other to buy. Now, buy-sell agreements can also include shotgun sales, which is a buy-sell agreement that’s triggered by a deadlock. And we’re going to focus today on the shotgun sale. That refers to the type of agreement that allows one party to set the price and then allows the other the party to decide whether, based on that price, they’re going to buy or sell.

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September 4, 2022

Minority Veto Rights Lead to Deadlocked LLCs

by Jay R. McDaniel, Esq.

Limited liability company statutes often require the unanimous approval of the members before actions may be taken outside the ordinary course of business or for any amendment of the Operating Agreement.
The requirement for unanimous action creates a minority veto – any member can veto the actions of the majority – often leading to deadlock.
States that have adopted the Uniform Limited Liability Company Act, including New Jersey, Pennsylvania and Connecticiut, require unanimous actions. Other states, including Delaware and New York, permit major actions to be taken by simple majority vote.

These days we’re seeing a political world in which we have a national politics that is very, very closely divided, and one or two people have tremendous control over the rest of the country. It’s not just the Congress, but over everyone. And they’re basically, even though they only have one vote, they’re able to stop things, able to derail a process. They have a minority veto. Continue reading

June 21, 2021

Threats Against Partner’s Ex Not Intentional Infliction of Emotional Distress

by Jay R. McDaniel, Esq.

In a dispute among general partners, a single verbal threat against spouse of one of the partners does not create a claim for intentional infliction of emotional distress.

CHERYL E. CHAMBERS, J.P. SYLVIA O. HINDS-RADIX COLLEEN D. DUFFY ANGELA G. IANNACCI, JJ.

In August 2007, the plaintiff and the defendant allegedly entered into an oral agreement establishing a general partnership to own, manage, and maintain real estate and, in [*2]furtherance of that agreement, jointly held title to two properties in Port Chester.

Well-drafted business governance documents include buy-sell agreements to address deadlock among the owners.

A shotgun buy-sell is an offer that sets only the price. It can be accepted as either an offer to buy out the other side or to sell to the other side at the price in the offer.

Shotgun buy-sells are an efficient means to set the price of a transaction, but may be flawed when the owners have unequal knowledge of the business or inadequate financial resources.

Limited liability company statutes often require the unanimous approval of the members before actions may be taken outside the ordinary course of business or for any amendment of the Operating Agreement.

The requirement for unanimous action creates a minority veto – any member can veto the actions of the majority – often leading to deadlock.

States that have adopted the Uniform Limited Liability Company Act, including New Jersey, Pennsylvania and Connecticiut, require unanimous actions. Other states, including Delaware and New York, permit major actions to be taken by simple majority vote.

In a dispute among general partners, a single verbal threat against spouse of one of the partners does not create a claim for intentional infliction of emotional distress.