Minnesota’s Limited Liability Company Act (“MLLCA”) requires that governors and directors of Minnesota limited liability companies owe fiduciary duties to the company itself. The two main duties are the duty of care and the duty of loyalty. Minnesota statute 322B.663 states a governor and manager must act with “the care and ordinarily prudent person in
Minnesota Business (Commercial) Litigation Attorney
Operating a successful business comes with the risk that someday, somebody will sue that business. In addition to dealings with outside parties, the presence of multiple owners adds a whole new category to the list of potential business lawsuits. While business people certainly don’t need to spend time poring over a civil procedure textbook, developing a cursory understanding of the process leading up to litigation and of the various types of disputes their business might face can be beneficial, especially if a potentially actionable business dispute arises.
Procedure Leading Up to Litigation
The first step of the process actually exists outside of the process—it involves speaking with an attorney. The business owner certainly knows the facts of the situation, and has an opinion as to whether her actions were “right or wrong”. Yet these facts may or may not correspond to legal doctrine, and the opinion is likely colored by emotion. Attorneys help by clarifying the facts to narrow the issues of the dispute, and by providing level-headed, rational advice as to whether the actions of either party create a cause of action.
Commonly Litigated Disputes
Minnesota law places special duties on business partners who are considered fiduciaries; this includes partners in a partnership or joint venture, managers and governors in an LLC, voting shareholders in closely held corporations, and directors and officers in corporations. These duties change somewhat depending on the category of relationship, but generally require treating each other with care, loyalty, honesty/disclosure, and obedience. Duties are also owed to the entity itself.
Obviously, businesses use contracts in a vast number of situations to accomplish a vast number of things. Just as obviously, the use of these contracts leads to disputes over the interpretation or validity of contracts, and as to whether they have been breached. Drafting contracts carefully can avoid some future disputes, but no drafter possesses the foresight to prevent any sort of conflict. Contractual disputes make up a large portion of business litigation.
Dissociation and Dissolution
Creating a new business is exciting, especially with one or more partners, and joint creators often don’t consider (or simply look past) the differences between themselves and their new business partners. Often, these differences develop into problems that make operating the business unbearable—even if that business has found financial success. In these situations, co-owners try to remedy the situation by leaving the entity, dissolving the entity, or kicking out the person causing the headache in the first place. Again, careful planning (and contract drafting) at an early stage can assuage some of these problems. Sometimes, however, disputes arise that cannot be resolved without judicial intervention, and the parties find themselves in court.
Piercing the Corporate Veil
Limited liability business entities such as LLCs and corporations shield their owners from personal liability—in an action against the company, only the assets of the company are at risk. When the owners fail to keep the entity detached from themselves, though, this shield can disappear. Under Minnesota corporate law (and LLC law), courts apply a multi-factor test to determine whether a plaintiff can “pierce the corporate veil” and satisfy liabilities by taking from the owners. These factors include separation of assets and undercapitalization of the entity, as well as whether corporate formalities such as record keeping and the holding of meetings (even in a single-owner entity) are observed. While this is termed “vertical piercing”, “horizontal piercing” may also occur when many separate entities start to resemble different branches of the same entity. Horizontal piercing enables the plaintiff to satisfy a liability from the cumulative resources of all entities, not merely the “branch” involved.
Usurping Corporate Opportunities: Business Owners’ Fiduciary Duties
Minnesota Court of Appeals Nygaard v. Nygaard No. A13-0276, 2014 WL 349647 (Unpublished) Although the Nygaard v. Nygaard case is an unpublished one, it presents an interesting issue of usurping corporate opportunities between a husband and wife that co-owned a business. In this case, Brenda Nygaard and Jeffrey Nygaard were married in 1982 and then
Shareholder Litigation Committees
A special litigation committee (“SLC”) is a committee appointed by the Board of Directors of a corporation that has been tasked with deciding whether to sue on a corporate claim or whether to continue an already commenced lawsuit against directors or officers of the corporation. When appointing an SLC, the board of directors should be
Breach of Contractual Representation of Future Legal Reliance
Recently in a certified question, the Minnesota Supreme Court found that under Minnesota Law a claim for the breach of a contractual representation of future legal compliance is actionable without proof of alliance. This new law came out of the recent Minnesota Supreme Court case Lyon Financial Services, Inc. d/b/a US Bank Corp Business Equipment
Interference with Economic Advantage
Protecting your Business' Reasonable Expectation of Prospective Business Relationships and Economic Advantage Until March, 2014 Minnesota had not formally recognized a claim for tortious interference with prospective economic advantage. A common law claim, its roots can be traced to three important Minnesota state cases, Witte Transportation Company v. Murphy Motor Lines, Inc. 193 N.W.2d 148
Piercing the Corporate Veil
Even when a business has created a limited liability company or a corporation in an effort to decrease or eliminate personal liability of shareholders and partners, those shareholder or partners can still be considered personally liable under a theory called “piercing the corporate veil.” Piercing the corporate veil is an equitable remedy and usually arises
Trade Secrets: Why They Matter to Your Business
In the world of electronic sharing and emails providing data at lightning speed, the issue of trade secrets has become an increasing concern for all businesses. Minnesota recognized this and adopted the Uniform Trade Secrets Act in 1980. A trade secret is information, including a formula, pattern, compilation, program, device, method, technique, or process that
Shareholder Litigation: Derivative or Direct?
Unfortunately, sometimes an aggrieved shareholder of a corporation has to sue to either prevent or remedy a wrong either on behalf the corporation or to protect that shareholder’s ownership of shares. Depending on the shareholder’s injury, a shareholder must decide if he or she is to bring a derivative lawsuit or a direct lawsuit. A
Minnesota Small Business Attorney
Every small business needs a business attorney who can be a resource as legal issues arise. Small businesses use a business attorney in many ways: A new Minnesota business may need an attorney to: Form a business entity---such as a Minnesota LLC, Minnesota S Corp, or Minnesota Corporation---to obtain limited liability and protect your personal
Protect Your Business from Employee Fraud
By altering company deposit slips, an employee was able to embezzle $244,000. She prepared two deposit slips: one put funds into the company’s account and the other put funds into her own bank account. This went on for over three years without detection because the employee handled both bookkeeping and deposit activities for the company.
Big Concern for Small Businesses: Business Fraud Overview
The following is an article by Stephanie Laitala, President and Owner of Owl Bookkeeping and CFO Services. Minneapolis Office: 3208 W. Lake Street #10 Minneapolis, MN 55416 612.816.6007 St. Paul Office: 370 Selby Avenue, Suite 300 St. Paul, MN 55102 612.816.6007 Most small business owners don’t believe that fraud can happen to them, but the reality is
Dispute with LLC Co-Owner or Business Partner: What Do I Do?
Disputes between co-owners are unfortunately common and can quickly get very complicated. In part, this is due to business owners’ numerous, and not necessarily intuitive, duties and powers. The powers, responsibilities, and duties of business owners are governed by a complex mix of state statutes, court decisions, and contractual duties arising from express or implied
Yes, Officers Owe Fiduciary Duties to a Corporation
There are some who apparently think that officers of a corporation do not owe fiduciary duties to the company. This is simply wrong. For example, under Minnesota Statutes section 302A.255, officers have a duty to act “in good faith” and “in the best interests of the corporation.” This duty of loyalty prohibits directors and officers
Why You Need a Solid Agreement with Your Partners: STP’s Sad Tale
Why You Need a Solid Written Agreement with Your Partners: The Unfortunate Tale of Stone Temple Pilots You Control Intellectual Property Your Company Creates by a Written Partnership Agreement The current legal battle among members of the Stone Temple Pilots may evolve into an excellent example of how to avoid common mistakes that business owners
Minnesota Antitrust Act: How are Businesses and Consumers Protected?
The Minnesota Antitrust Act prohibits companies from conspiring together to unreasonably restrain their competitors or unreasonably restrain the availability of products in order to benefit themselves financially. What does this mean? Here are a few specifics. Before we get into what the Minnesota Antitrust Act covers, here are a few important definitions. "Commodity" means any
Common Factors Leading to Business Litigation
Litigation imposes high costs on all parties to a dispute, and each side has an interest in avoiding it by reaching an acceptable settlement. Various factors can prevent the parties from coming to an agreement, however, making litigation between the parties more likely. Relationships can sour quickly, making easily resolvable disputes considerably more complicated. Rather
Procedure Leading Up to Business Litigation
The first step of the business litigation process actually exists outside of the process—it involves speaking with an experienced business litigation attorney. The business owner certainly knows the facts of the situation, and has an opinion as to whether her actions were “right or wrong”. Yet these facts may or may not correspond to legal
Corporate Shareholder Buyout Issue
Our client is the (slightly) minority shareholder of a two shareholder corporation. He is also the CEO. Under the corporate documents, he receives a salary for his role as CEO. Our client feels he might be forced to sell his shares back to the company. He has no expectation of profit from the shares (they
Minnesota Termination of Sales Representatives Act
The Minnesota Legislature enacted the Minnesota Termination of Sales Representatives Act to give certain rights to sales representatives and provide some ground rules to govern the relationship between manufacturers and sales representatives with territories in Minnesota. If problems arise, and the manufacturer wants to terminate a sales representative, the Minnesota Termination of Sales Representatives Act
Cease & Desist Defamation of Character Template, Example, Sample Form
The following Cease and Desist Letter is solely for use in defamation of character claims (modifications could be made to specify libel or slander), and is from the perspective of a Minneapolis attorney writing on behalf of a client whose character has been defamed. Because laws vary from jurisdiction to jurisdiction, this cease and desist