In this Blog’s last entry , we discussed the advantages and disadvantages of forming a limited liability company (“LLC”). Today’s entry discusses whether non-managing members of a manager-managed LLC owe fiduciary duties to the other LLC members and to the LLC itself. An LLC is a hybrid business entity having the attributes of both a corporation and a partnership. E.g. , Willoughby Rehabilitation & Health Care Ctr., LLC v. Webster , 2006 NY Slip Op. 52067(U) (13 Misc. 3d 123

New business owners have many decisions to make when they start a business. Many of these decisions will impact the business for years to come. Among them is the correct type of business to form. One of the most common business forms used by entrepreneurs is the Limited Liability Company (“LLC”). While LLCs share many of the same attributes as an S-Corporation or C-Corporation, they are more flexible and require less formalities and paperwork. An S-Corporation (formerly kno

The enforceability of a covenant not to compete is an issue that commercial and business lawyers often consider in their practice. Sometimes, the issue arises when an employee leaves a business to open his/her own shop, while other times the issue arises in the sale of a company. On January 18, 2017, in Shimon v. Paper Enterprises, Inc. , 2017 NY Slip Op. 30101(U) , Justice Sylvia G. Ash of the Supreme Court, Kings County, Commercial Division, issued an injunction enforcing

Last year, the Appellate Division, Second Department, affirmed and modified in part a post-trial judgment against a former minority partner who wrongfully dissolved a general partnership. Congel v. Malfitano , 141 A.D.3d 64 (2d Dep’t May 18, 2016). In a case of first impression in the Department, the Court found that, under Partnership Law § 69(2)(c)(II), a “minority discount” may be applied to the valuation of a minority partner’s interest to reflect the lack of control the

Parties to commercial/business transactions are no doubt familiar with “term sheets”, “letters of intent”, “memoranda of understanding” and “agreements in principle”. As the parties to these documents know, they outline the fundamental terms of the transaction being negotiated. Terms sheets and the like have a number of advantages: they can be drafted without the expense of hiring a lawyer; they reduce later renegotiation and lapses in memory; they can facilitate discussions

What is a forum selection clause? Corporations and other business entities are all too familiar with them. In its simplest form, a forum selection clause is a provision in a contract that designates a specific location (or a particular court within a specific location) for litigation in the event of a dispute. Forum selection clauses are common in commercial contracts because they “provide certainty and predictability in the resolution of disputes.” Boss v. American Express

A breach of contract comes in two primary varieties: a material breach and a minor breach. The former is substantial, goes to the very heart of the agreement and prevents the contract from being performed. When a material breach occurs, the non-breaching party can cease performing under the agreement and sue to collect the damages caused by the breach. The latter, also known as a partial breach, occurs when a party fails to complete a less important part of a contract. Impo

Business owners hate litigation. In fact, there are few things they hate more. Litigation damages relationships, tarnishes reputations, and interferes with business operations. Even small claims divert time, money and talent. So, how can corporations and small businesses avoid these costs and expenses? The answer: alternative dispute resolution, such as arbitration and mediation. Over the past few decades, it has become commonplace for corporations and small businesses to i

From time to time, this Blog has written about lawsuits involving corporations, including those brought as shareholder derivative actions ( here ). As this Blog explained, a derivative action is a lawsuit brought by a shareholder of a company, on behalf, and for the benefit, of the company to enforce or defend a legal right or claim. Derivative actions seek the recovery of damages and/or equitable relief arising from unlawful or improper conduct engaged in by officers, direct

What could this legislation mean for New York businesses? New York Attorney General Eric T. Schneiderman recently introduced legislation intended to reduce the use of non-compete agreements in the workplace. The bill is designed to protect the rights of workers to find better employment opportunities, particularly for low-wage earners who have been hindered in their ability to move to new jobs because of non-compete agreements. Schneiderman’s bill includes: A ban on all non

Let’s say you, the reader, are an entrepreneur who wants to open a business. Although you are willing to run the risks associated with a startup, you do not want to incur any personal liability for the acts done by the business. After speaking with your family, friends and neighbors, you decide to incorporate the business. The consensus view is that a corporate entity, such as a corporation or limited liability corporation (“LLC”), will enable you to operate the business and

Jane is a shareholder in ABC Co. Over the past three years, the company has been losing money, due in large part to an increase in expenses. Jane learns the truth about the company’s financial condition and discovers that senior managers of the company are reporting their personal use of the company’s jet, cars and houses as a business expense. Because of managements’ failure to properly report the use of company property, the company’s expenses have skyrocketed. Jane wants t

Champerty. Most people have never heard of the word, and, even if they did, it is more likely they do not remember what it means. The same is probably true for most lawyers, who most likely encountered the doctrine when they studied for the bar exam. So what is champerty? Black’s Online Law Dictionary (2d ed.) defines champerty as: “A bargain made by a stranger with one of the parties to a suit, by which such third person undertakes to carry on the litigation at his own cost

Bryan Reichel, founder of PureChoice -- deceptive or duped? Business lawsuits involving accusations of fraud can be complicated and confusing. It is sometimes difficult to decipher who is lying and who is telling the truth. On the one hand, there is a successful CEO, who is alleged to have committed fraud to develop or maintain a lavish lifestyle. While, on the other hand, there is an accuser who stands to gain money and power by overthrowing the existing kingpin. If you fin

What is behind the lawsuit accusing Hitachi of Stealing Trade Secrets from Purolite? At the end of August, Purolite, an American water treatment company based in Pennsylvania, filed a lawsuit against the American branch of Japanese conglomerate Hitachi. According to Purolite, Hitachi violated the stipulations of a business agreement by sharing Purolite's confidential trade secrets concerning the decontamination of water, including water contaminated by radioactive waste. Pur

How can I protect my business from conduct risk? The U.S. Attorney in Manhattan recently announced a number of charges against two former executives of American Realty Capital Properties, Inc. ("American Realty"), a real estate investment trust ("REIT"), for their role in a 2014 accounting scandal. Brian Block, the former chief financial officer ("CFO"), is facing six criminal counts for securities fraud, conspiracy and the making of false statements. Lisa McAlister, the RE

On May 31, 2016, the Appellate Division, First Department, issued MP Cool Investments Ltd. v. Forkosh , 2016 NY Slip Op. 05944, a case involving allegations of fraud in connection with the production and sale of a commercial heating and ventilation system by an Israeli-based company. In the decision, the First Department unanimously affirmed the motion court’s dismissal of the plaintiff’s fraud claims because they were not pleaded with particularity, did not establish justif