As a business lawyer, I have spent years counseling small to mid-sized companies across a wide range of industries.  I have advised clients on routine to complex business legal issues that arise during the start-up stage through operation and growth stages, and have structured many exit strategies and created successful succession plans in various ownership documents.  What I love best about providing sound legal guidance to business owners through the life cycle of their business is helping them solve issues that arise both from a legal perspective and also from a financial perspective.  Helping clients navigate through contractual, employment, finance, IP protection, and other daily issues so they can focus on achieving their goals of growth, maximization of profits, and sustainability, all while minimizing their potential for risk and exposure is a vital objective in my practice. 

I have recently been invited to participate for the next several weeks as an advisor in an exciting new local event – The Spark Bowl.  Co-sponsored by Delaware Valley University, it’s Small Business and Entrepreneurship Center and the Central Bucks Chamber of Commerce, this event is a local competition aimed at fostering innovation, growth, and entrepreneurship.   At the First Annual Spark Bowl event to be held on December 11th, students and local entrepreneurs in and around Bucks County will “pitch” their businesses plans to Spark’s judges, who will select a winner who will receive prizes and benefits to include monetary funding as well as access to expert advisors.  The contest will be judged by experienced investors who have a desire to support innovation and economic growth and prosperity within the local community.  As part of DelVal’s experiential learning program, DVU student teams will work with final contestants to prepare for the competition under the guidance of DelVal faculty and SBEC advisors.  Professor William Viel of DVU’s Business and Information Management Department is the Director of the SBEC.  It is quite a valuable resource to this community to have such an incubator right here in Central Bucks. Please click here to learn more about The Spark Bowl at Delaware Valley University.

After many years of working with business owners, some who were successful, and some who were not, it seems evident that the best predicator of sustainable business growth and success is: planning by asking the right questions up-front; creating detailed business plans and product or service models; determining the expected demand for their product or service in a low or highly competitive market; understanding both traditional and non-traditional financing alternatives; putting together the right team of professionals to help them produce, deliver and promote their business and its products/services; dealing with operational challenges and various levels of legal compliance properly, all while being willing to assess weaknesses and promote strengths.

The Spark Bowl has inspired me to remind my clients to think about why they are doing what they are doing, as they work through the day-to-day challenges (legal and otherwise) of operating and sustaining a business they built and love.

Good Luck to all the participants on December 11th!     

Many an article or blog post concerns minority shareholder rights, shareholder oppression or shareholder “freeze out”.  As business and litigation lawyers, we are always mindful of the rights between and among business owners, what can and cannot be done in furtherance of those rights and the legal mechanisms applicable to the exercise of those rights.  We frequently write on the strategies available to a minority shareholder such as examination of books and records, claims of breach of fiduciary duty and the potential for appointment of a corporate receiver or custodian. 

This is not that article. 

The fact is, being a minority shareholder means that, by definition, there are often things you simply cannot control.  A shareholder or member in a business entity who possesses less than a controlling stake must have reasonable expectations as to the rights attendant to such ownership and understand the limits of such rights so as to make informed decisions concerning the investment of time, energy and money in pursuit of the collective enterprise.    

Let’s start with who owns the remaining shares in the company.  In the absence of an agreement to the contrary, the majority shareholder is free to transfer the majority (said another way; controlling) interest in the company without the consent of the minority.  A transaction can result in a change in control such that the minority shareholder suddenly works for someone entirely new.  While a minority shareholder can enjoy “dissenter’s rights”, such rights are applicable in very narrow situations specified by statute.   In fact, in the absence of a prohibition, the stock in a business entity is readily transferrable, just like on an exchange, if a buyer and/or seller can be identified.

Internally, a minority shareholder can find it difficult to impact the direction of the business.  Depending on the by-laws of the entity and, frankly, the will of the majority, a minority shareholder may or may not have a voice on the board of directors and thus may not possess a vote on material decisions such as the persons who will fulfill critical roles in the executive branch of the business such as the officers of the corporation. More importantly, a minority shareholder may not have input on the financial operations of the company including distributions, financing arrangements, major purchases of inventory, equipment or talent.  All of which can dramatically affect the annual bottom line.

Even employment is not guaranteed to a minority in interest.  In the absence of an agreement to the contrary, the employment of a minority shareholder may simply be at will in the same way as the sales force, the administrative assistants or the custodian.  Certainly, terminating a minority’s employment could be one of the factors argued in a freeze out, but in the absence of other factors, termination of employment alone may not give rise to a cause of action.  Certain courts have suggested continued employment may be implicit in a “founder” but those situations are few and far between and a plaintiff/minority shareholder must be prepared with more to argue than the end of employment if freeze out is alleged. 

In business, like politics, being in the minority means sometimes you are powerless to immediately change the course of the company.  Sometimes, a group of shareholders can band together to pool their collective influence for their mutual benefit.  Other times, the best strategy is to become the majority even when the acquisition of additional shares comes at an unnecessary or unanticipated cost.  Under any circumstances, rights afforded to the majority are not constrained solely because a minority shareholder does not agree with a particular course of action.  

As a litigator, I am often contacted by minority shareholders who are frustrated by their lack of control or influence.  While the law offers certain protection for holders of such minority interests, those remedies are factually limited and are often unsatisfactory even if granted in full after significant expense in litigation.  Certainly an appropriate agreement outlining the respective rights and obligations can change the analysis.  Business owners should consider, and plan for, what rights their stake in the company provides.          

This is the fourth installment of my continuing blog series explaining the main elements of a contract, which are outlined on the attached infographic . My goal is to demystify some of these basic provisions to help business owners have a better general understanding of what they are signing.

This article discusses representations, warranties, and covenants, which are the “bones” of the parties’ agreement. These provisions represent the statements of the underlying facts, mutual assurances, and promises of performance which form the basis of the parties’ mutual understanding. It’s not uncommon to find these concepts used interchangeably in a contract – “ABC represents, warrants, and covenants…”, but the meaning and effect of each of these are quite distinct from one another. It’s important to understand these distinctions so that your contracts accurately reflect the assumptions, obligations, and risks that you are comfortable with.

A representation is a statement of past or present fact (either express or implied) made by one party to induce the other party to enter into the agreement. For example, the seller of a business might represent that gross revenues from the business were a certain dollar amount for the past several years or that there are no claims asserted against the business. If a representation proves to have been untrue when made, the injured party will have a claim of fraudulent misrepresentation if she can prove that: (i) the party making the representation knew or should have known the statement was false when made; (ii) the other party intended the injured party to rely on the statement; and (iii) the injured party’s reliance on the statement in entering into the agreement was justifiable. The injured party can seek monetary damages for its losses or it may ask the court to rescind (void) the entire contract. It is therefore very important to avoid “over-representing” in your contracts.

A warranty is essentially a promise that an assertion made by a party is true, coupled with an implied promise of indemnity if the assertion made by the party is false. As such, a warranty is both present-focused, like a representation, and forward-looking, like a covenant. If a warranty is breached, the injured party is entitled to be made whole; this usually means that the injured party can recover the difference between the value of the contract as agreed upon and the value of the contract in light of the breach. In other words, the injured party is entitled to receive the benefit of the bargain he initially made. The injured party is not required to demonstrate that he relied on the warranty or that the other party knew that the warranty was false when made.

Often, but not always, representations and warranties go hand-in-hand to allow the parties to preserve remedies that are as broad as possible. In complex agreements, the parties usually spend a significant amount of time negotiating how the risks embodied by representations and warranties should be allocated by qualifying and limiting these concepts (e.g., a representation is true to the best of the maker’s knowledge and/or in all material respects).

Product and service warranties are specialized contractual provisions that are actually hybrids of representations, warranties, and covenants. These provisions commonly create limited express warranties that apply to the products or services, identify specific contractual remedies for breach, and disclaim implied warranties that are provided by law.

A covenant is a party’s promise to perform an action or to refrain from performing an action. It relates to the future, as opposed to representations, which are provided as of a specific date. An example of a covenant is a borrower’s promise to make loan payments in accordance with the terms of a promissory note. Covenants can be express or implied. Pennsylvania law imposes an implied covenant of good faith and fair dealing in most contracts.

Stay tuned for Part 5 of this series, which will move on to discuss some possible hidden perils of what is commonly dismissed as “just boilerplate” language.

On Tuesday, November 5th, voters will be casting ballots to fill two seats on the Superior Court of Pennsylvania. Voters also will be deciding whether to retain two judges on the Superior Court of Pennsylvania and two judges on the Commonwealth Court of Pennsylvania.To better inform voters about the candidates in this statewide election, the Pennsylvania Bar Association Judicial Evaluation Commission (PBA JEC) is reissuing its ratings and descriptive paragraphs for all appellate judge candidates appearing on the Nov. 5 ballots.

In order to help you to make an informed decision, we have linked that review here for your reference. 

Here in Bucks County, six candidates are running for Common Pleas Judge.  Last Spring, the Bucks County Bar Association (“BCBA”), an organization of attorneys dedicated to promoting and advancing the legal system and justice throughout Bucks County, conducted a plebiscite (peer evaluation) to evaluate ten attorneys who announced their candidacy for three vacancies on the Bucks County Court of Common Pleas, and the four current judges of the Bucks County Court of Common Pleas who are running for retention.  Please note, this evaluation was done prior to the May primary election, please refer to the table below for the evaluations of the six remaining candidates who will appear on the ballot on November 5th in the highly recommended, recommended and not recommended categories.  The remaining candidates for the three judicial vacancies are Denise M. Bowman, Grace Deon, Charissa Liller, Allen Toadvine, Jessica Vanderkam, and Jordan Yeager.  If you wish to review the original evaluations, here is a link to the plebiscite results.

Additionally, the members of the Bucks County Bar Association were asked to provide their opinions if the following Judges should be retained in office as a Judge of the Court of Common Pleas of Bucks County.  Here are the results in the endorsed and not endorsed categories:

However you may choose to vote, please do remember Election Day, Tuesday, November 5th.