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Presentation Family Business Defaults

Family and Business Law Proposed Default Rules. In class presentation for corporate law class in law school.

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Presentation Family Business Defaults

  1. 1. Family-Business Default Rules
  2. 2. Dimas Flores Construction Inc. & Casitas Flores LLC
  3. 3. The majority of U.S. businesses are family owned
  4. 4. 35% of the are family owned and operated
  5. 5. Contractually Protecting The Family-Business
  6. 6. Family-Business Default Rules
  7. 7. 1.operating clause that allows the incorporation of oral agreements and implied agreements; 1.exit right; 1.limit equity’s role in a family-business; and 1.waiver of default rules must be clearly negotiated.
  8. 8. “Family-business” means… a business entity, no matter how large or small, which effective control of the business rest in the families’ hands. Effective control by the family is evident by at least two family members being involved as owners or managers.
  9. 9. operating clause that allows the incorporation of oral agreements and implied agreements 1st Default Rule...
  10. 10. Operating agreement” means.. the agreement, whether or not referred to as an operating agreement and whether oral, in a record, implied, or in any combination thereof, of all members of [name of business] company, concerning matters of the business.
  11. 11. 2nd Default Rule Right
  12. 12. Default Buy and Sell Agreement: Majority investors will enter into a buy and sell agreement whereby in the event any of the minority investors desires to terminate [his/her] activity with the businesses named here that the corporate stock held by the terminating investor will be first offered to the remaining investors or the corporation. The bylaws will further provide that in the event none of the investors desire to purchase the stock that then and in that event, the corporation may purchase the minority investor’s shares. The agreement must be documented in writing. If neither the shareholders nor the corporation want to purchase the stock or are unable to purchase minority investor’s share, a willing buyer in the open market may then purchase the stock.
  13. 13. 3rd Default Rule... Limit equity’s role in a family-business
  14. 14. Waiver of default rules must be clearly negotiated 4th Default Rule...
  15. 15. Application of the Default Rules
  16. 16. What state should adopt the family-business default rules?
  17. 17. Maine

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