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When it comes to running a corporation, planning for the unexpected is just as important as day-to-day operations. One critical but often overlooked safeguard is a well-drafted shareholder agreement.

Imagine a scenario where a shareholder unexpectedly passes away or decides to retire. Without a well-drafted shareholder agreement, the shareholders could face significant legal and financial challenges and expenses. These include disputes over ownership and control, leading to costly legal battles; valuation disagreements requiring expensive external experts; and complications in exiting the company, which may result in prolonged negotiations or litigation. Additionally, the absence of clear buy-sell provisions can leave shareholders facing unexpected tax liabilities or difficulties in handling the death or disability of a shareholder.

Ownership of a corporation is held in shares of stock. Shareholders or stockholders have the right to, and as a best practice should, enter into a contract that clearly explains the rights and responsibilities of each shareholder. These contracts can outline ownership interests, employment and payment rights, distribution rights, access to corporate documents, and any other agreements the shareholders want to make.

Notably, shareholder agreements can also preemptively address what happens when a shareholder dies, retires, or otherwise wants to divest their shares. In a recent matter handled by CMM’s litigation team and led by litigation partner David Green, owners of a corporation’s shares spent significant resources litigating over the value of the corporation so that one shareholder could sell their shares. The shareholder’s agreement was silent on any valuation methodology.

In contrast, a shareholder’s agreement can include a specific formula to determine valuation, or even a specific value per share. Spending the time, money, and resources upfront to assess and plan for a share sale would have saved the client tens of thousands of dollars in the long run. This real-life example underscores the importance of proactive planning.

Moreover, minority shareholders may be at risk of oppression without adequate contractual protections, and unclear roles or compensation structures for working shareholders can lead to internal disputes. Finally, without defined ownership of intellectual property or company assets, shareholders could face costly legal conflicts.

Maintaining a comprehensive and up-to-date shareholder agreement is crucial for any corporation. The best practice for any corporate shareholder is to create and regularly assess your shareholder’s agreement. Learn more:

• Annual Business Checkup: Preventing a Costly Business Divorce
• Annual Business Checkup: Operating Agreements
• Annual Business Checkup: Partnership Agreements

For more input and guidance on business divorce, reach out to David Green at 631-738-9100.

Thank you to Alex Tomaro for his research and writing assistance.

The phrase “hope for the best, prepare for the worst” has Latin roots, tracing back to “si vis pacem, para bellum,” meaning “if you want peace, prepare for war,” emphasizing the need to be optimistic, but prepared.

In the context of business relationships, this mindset is especially relevant. Business relationships often begin with shared goals, trust, and mutual interests, but disagreements, changes in circumstances, or evolving visions can lead to disputes, and possibly business divorce. To avoid legal issues and financial strain, it is crucial to be proactive and prepared. Regular assessments of key corporate documents are essential!

For corporations, the bylaws are the rules that generally govern the operation of the business. However, specific agreements between the shareholders should be further fleshed out in a separate shareholder agreement. The shareholder agreement should address everything from management structure to shareholder rights and dispute resolution mechanisms. As legal landscapes and business and personal relationships evolve, outdated agreements can create complications, misunderstandings, and unnecessary disputes. Being proactive helps ensure that all parties are on the same page, ultimately making the navigation of working relationships, the dissolution process, and any other disputes more efficient and less contentious.

For LLCs or other business structures where ownership is shared, the operating agreement is the central document. Some crucial elements to review in this document are the terms for dissolution and buyouts. If a partner wants to exit, how is the buyout structured? Are there clear formulas in place, or will a third-party valuation be required?

For partnerships, a clear partnership agreement is the first line of defense against the fallout from a potential business divorce. A properly drafted partnership agreement should articulate roles, responsibilities, and expectations, and most importantly, provide clear mechanisms for withdrawal, dissolution, and valuation of the business.

Financial mismanagement or disagreements can lead to significant legal issues. Clear and transparent financial agreements help prevent such problems. Key items to review include debt obligations, liability distribution, profit-sharing models, and capital calls or funding expectations. These financial agreements should be revisited annually to reflect the business’s current financial standing and to ensure clarity over financial responsibilities and expectations.

A business divorce does not have to be a messy, expensive ordeal if business owners maintain clear, well-drafted agreements and regularly review their governing documents. A proactive approach to legal maintenance ensures that your business is protected from conflicts, liabilities, and potential complications. By preparing for the worst while hoping for the best, you can safeguard your business’s future and avoid the costly repercussions of neglecting to check up on important governing agreements. Learn more:

• Annual Business Checkup: Shareholder Agreements
• Annual Business Checkup: Operating Agreements
• Annual Business Checkup: Partnership Agreements

For more input and guidance on business divorce, reach out to David Green at 631-738-9100.

Thank you to Alex Tomaro for his research and writing assistance.

UPDATE: On Friday, January 24, 2025, the Eleventh Circuit ruled in Insurance Marketing Coalition v. FCC, vacating the FCC’s one-to-one consent rule and sending it back to the agency. The court determined that the rule exceeded the FCC’s authority under the TCPA. Given that the rule would have introduced substantial new consent requirements for marketing calls, this decision provides a significant relief for calling parties. Stay tuned for additional updates.

The Federal Communications Commission (FCC) has introduced new regulations under the Telephone Consumer Protection Act (TCPA) which are set to go into effect on January 27, 2025. This new rule will directly impact businesses engaged in telemarketing, text messaging, and other forms of communication using automated systems. These changes are designed to strengthen consumer protection and ensure that companies obtain explicit, individualized consent from each customer before contacting them using automatic dialing systems or prerecorded voices.

Under the revised rule, sellers of information can no longer rely on a single customer consent provided by a lead generator. Previously, businesses could obtain consent through third-party partners, such as lead generators, which would then apply to all the telemarketers associated with the seller. Now, each seller must separately obtain consent from a consumer before making calls or sending texts that fall under the wireless number prohibition.

The key stipulation is that the marketer must clearly list the entities on whose behalf it is seeking consent. This means that while a marketer can still obtain consent for several sellers, it must be transparent about who is involved and ensure that consumers are fully informed about which company is seeking permission.

For a business to comply with the new TCPA rules, the consent it obtains must be “clear and conspicuous.” The FCC has defined this standard as meaning that the consent disclosure must be “apparent to a reasonable consumer.” The consent should not be buried in fine print, hidden behind hyperlinks, or difficult to read. However, determining whether a disclosure is “clear and conspicuous” can be complex, as it depends on the context and the specific interaction with the consumer.

The scope of communication that is permitted once consent is granted will be closely tied to the context in which it was given. The FCC has stated that calls and texts must be “logically and topically associated” with the reason the consumer initially provided consent. In other words, the content of the communication must be relevant to the purpose or context of the consumer’s interaction with the seller.

While the FCC has not provided a strict definition of what constitutes “reasonably inferred” content, it has suggested that businesses err on the side of caution. When in doubt, sellers should limit the content to what a consumer would clearly expect based on the purpose of the website or location where consent was provided. This means that businesses must carefully consider what is appropriate to send to a consumer and avoid overstepping the bounds of what the consumer likely expected when they gave consent.

For more guidance, contact Vincent J. Costa, Esq. at 631-738-9100.

On Dec. 23, 2023, Gov. Hochul signed the New York LLC Transparency Act (NYLTA), and, after some March 2024 amendments to address privacy issues and to extend the implementation date, the law will go into effect on Dec. 21, 2024.¹ While the law is based upon the federal Corporate Transparency Act (CTA), it is not exactly the same in its applicability or reporting.

The NYLTA requires all New York limited liability companies, including exempt LLCs, in existence on Jan. 1, 2026, to file their initial reports on or before Dec. 31, 2026. All New York LLCs that file for formation or registration in New York on or after Jan. 1, 2026, will have thirty days from the date of formation or registration to file initial reports.

The NYLTA also requires LLCs’ beneficial ownership to be reported.^₂ As of now, New York State (NYS) is sending newly-organized entities forms to complete, immediately after creation of the entity, which require submission of the required ownership information to the State.

There are exemptions to the filing requirements and the NYLTA incorporates many of the CTA exemptions into the NYS law, including the “large operating company,” banking, and publicly- traded company exceptions. One difference in claiming an exemption under the NYLTA is that any LLC claiming an exemption must file a sworn attestation each year identifying the exemption and the facts supporting that claimed exemption.³ No such requirement exists under the CTA.

New York LLCs not claiming an exemption must report personal information about their “beneficial owners” and “applicants.”

The NYLTA defines “beneficial owner” as individuals who: (i) own or control at least 25% of the LLC; and/or (ii) exercise substantial control over the LLC,⁴ with “substantial control” being the following:

• Serving as a senior officer of the reporting company, including as CEO, COO, or general counsel;
• Having authority over the appointment or removal of senior officers or a majority of the board of directors;
• Directing, determining, or having substantial influence over important decisions made by the reporting company; or
• Holding any other form of substantial control over the reporting company.

“Applicants” are those persons who filed or directed the filing of papers with the Department of State to form the LLC or register it to do business in New York.

The personal information to be reported about beneficial owners and applicants is:

• Full legal name;
• Date of birth;
• Current home or business street address, as applicable; and
• An identifying number from a government-issued identification (i.e., driver’s license, passport, etc.).⁵

After the initial registration under the NYLTA, LLCs are required to file annual statements confirming or updating the following:

• Beneficial ownership disclosure information (non-exempt LLCs only);
• The street address of the LLC’s principal executive office;
• The LLC’s status as an exempt company, if applicable; and
• Such other information as may be designated by the Department of State.⁶

This differs from the CTA, which requires updating within 30 days of any changes, and reporting will be made electronically to the NYS Department of State.

The information reported is NOT generally available to the public, and all information will be maintained by NYS in a secure database, accessible only:

• At the written request of or by voluntary written consent of the beneficial owner;
• By court order;
• To officers or employees of another federal, state, or local government agency where disclosure is necessary for the agency to perform its official duties as required by statute or necessary to operate a program specifically authorized by law; or
• For a valid law enforcement purpose.⁷

Penalties for non-compliance include:

• Upon 30-days’ notice, automatic “suspension,” meaning the LLC may not conduct business in New York until it becomes compliant;⁸
• The Attorney General may assess a late fee of $500 per day of noncompliance;⁹ and
• The Attorney General may bring an action to dissolve or annul the authority of the non-compliant LLC to do business in New York if that entity remains non-compliant for two years or more.¹⁰

The NYLTA prohibits knowingly providing or attempting to provide false information by any individual, and the New York State Attorney General may bring an action to dissolve or cancel an LLC that provides false information.¹¹

For guidance, please visit our Labor & Employment page or call us at 631-738-9100.

Thank you to Anna Sorto for her research and writing assistance.

1. N.Y. Limited Liab. Co. Law §§ 1106, 1107, and 1108.
2. N.Y. LTD. LIAB. CO. § 1107(d).
3. Id. § 1107(b).
4. Id. § 1106(a); See also Beneficial Ownership Information Reporting Requirements, 31 U.S.C.S. § 5336 (LexisNexis, LEXIS through Pub. L. No. 118-106).
5. Id. § 1107(a).
6. Id. § 1107(g).
7. Id. § 1107(f).
8. Id. § 1108(g).
9. Id. § 1108(a).
10. Id. § 1108(e).
11. Id.