Ideally, in a perfect world, corporate shareholders of a family-owned business would always get along and cooperate effectively. Unfortunately, the real world is not a perfect world, and sometimes shareholder disputes arise and end up in litigation. That is when you need to be sure you have experienced Georgia business attorneys on your side. One such shareholder dispute recently went all the way to the Georgia Supreme Court earlier this year, with that court reversing a trial judge’s decision and sending the case back for more action.
The corporate entity at the center of this dispute demonstrates the issues that can arise when family relationships and business relationships collide. The business, an electric services contractor, had been in existence since 1937 and incorporated since 1959. In 1988, the incorporator decided to award ownership interests to each of his three sons, all of whom were working for the company at the time. (The bylaws restricted stockholders to employees of the entity.) Two sons, Gary and Phillip, got 25% each. A third son, Doss, received 16.67%. (The father retained 33.33% himself.)
The sons moved in different directions. Doss ended his employment at the family business in 1994. Gary and Phillip went on to become the company’s CEO and CFO, respectively. By 2011, the brothers were in court. Doss alleged that he had not received a payment that the business owed him for his stock. All sides agreed that only employees of the business could be stockholders and that Doss ceased being an employee in 1994. Doss, in his complaint, contended that the entity’s bylaws required the company to buy out his stock and to pay him for his ownership interest based upon the book value of the stock. This buyout and payment, Doss alleged, never took place.
The question then became, which book value was the correct one? Was it the book value of the stock when Doss left the company in 1994, or the book value when the litigation began in 2011? Another piece of evidence affecting Doss’ case was the existence of a buy-sell agreement created back in 1988 when the sons first received their stock. That agreement dictated the terms for valuing the stock in the event of a termination-triggered buyout, but Doss contended that it didn’t apply. The agreement expired in 2008, and at no point between 1994 and 2008 did the company make a valid offer to purchase his stock, he contended. On the other side, Gary argued that he offered to buy Doss’ stock in 2003, but Doss refused to sell.
The difference in value was substantial. Doss’ stock was worth $54,200 in 1994. In 2015, it was worth in excess of $2 million. The trial court concluded that Doss was obligated to return his stock to the corporation when he left in 1994 and accept payment at that time. Based upon this, the trial court awarded him $54,200.
Ultimately, the Georgia Supreme Court overturned that decision and sent the case back to the trial court. The problem with the lower court’s ruling was that the judge never made findings of fact and conclusions of law. Included in that absence was a lack of a declaration regarding which corporate documents, including the corporate bylaws and the buy-sell agreement, controlled the trial judge’s determination regarding the payout owed to Doss.
The decision by the Supreme Court means that this long-running dispute between these brothers over the family business will continue for a while longer.
Whether a corporation is owned by family members or people who have no relationship to each other, each entity’s ownership structure will present its own set of potential issues. If you find yourself embroiled in a stockholder dispute, it is important to consult experienced Georgia counsel. As shown by these brothers’ situation, a stockholder dispute has the potential to have millions of dollars of impact. The skilled Atlanta business litigation attorneys at Poole Huffman, LLC have been helping their business clients for many years as they work to protect their business interests and their rights. Contact our attorneys online or by calling (404) 373-4008 to schedule your confidential consultation.
More blog posts:
Confirmation Letters – Avoiding Potential Conflict Regarding Agreement Terms, Atlanta Business Litigation Attorneys Blog, April 5, 2016
Wrongful Foreclosure, Atlanta Business Litigation Attorneys Blog, May 16, 2013