Page 22 - The Jewish Voice - February '24

Page 22, The Jewish Voice BW

LiFestyLes

Considerations before owners. However, depending on state law, the majority owner this newsletter was not intended or written to be used, and
may owe fiduciary duties only to the company and not to a
cannot be used, by any person for the purpose of avoiding
Becoming a Minority Owner minority owner. U.S. federal tax penalties that may be imposed on such person
Minority oppression may occur in situations such as the and (ii) each taxpayer should seek advice from their tax
By Anné Desormier- following: advisor based on the taxpayer’s particular circumstances.
Cartwright, Esq. • The majority owner refuses to make profit distributions
Becoming a minority when the company is profitable Financial Focus
owner in a business can give • The majority owners are excessively compensated
you the opportunity to help • The majority owners dilute the voting rights or Treasury Bonds: Still Safe for Investors
a business grow and share ownership of minority owners
in its success without the • The majority owners unreasonably restrict the sale or By Sally Sima Stahl
management responsibilities. transfer of minority membership interests You may have read reports
Minority owners may be • The majority owners deny a minority owner’s access to about an impending “debt
brought in to facilitate financial records crisis” in the U.S. Should you
growth, perform acquisitions, • The minority owner is fired as a “squeeze play” to be worried about investing in
or achieve other strategic eliminate their ownership interest Treasury securities?
goals and often provide valuable expertise in addition to the Again, majority owners have a lot of leeway in how they Part of the concern
capital investment they make in the business. operate the business, and not all of these examples will rise over debt has been driven
However, because a minority owner owns less than 50 to the level of oppression in every case. To prove oppression, by the cost of government
percent of the business, and state business laws typically it may be necessary to show that the actions of the majority borrowing, which has risen
give minority owners limited rights, the minority owner may owner toward the minority owner not only interfered with because of higher interest
be at the mercy of the majority owners. If a conflict arises the latter’s interests, but also were intentional. Making this rates. But it’s worth noting
and the minority owner’s rights are infringed, they can file determination requires a case-by-case analysis in accordance that while interest expenses have risen to nearly 2 percent of
a lawsuit. Conflicts can also be prevented through a written with the relevant facts and state law. gross domestic product (GDP), this measure had exceeded
agreement that modifies state law and more strongly protects A successful oppression lawsuit may result in the 3 percent in the early 1990s. So, while the upward trend of
the minority owner against oppressive conduct. In addition, payment of monetary damages, a court-ordered buyout of federal debt could prove problematic down the road, the
under the new law that requires disclosure of beneficial the oppressed minority owner, or equitable relief, such as claims of a current crisis may be overblown. And Treasury
ownership interests to the government. More to come in requiring the company to cease their specific oppressive securities are still considered among the safest investments in
another article about reporting requirements. actions. the world, as they are secured by the full faith and credit —
Minority Owner Rights Negotiating Stronger Minority Owner Protections that is, the ability to borrow and tax — of the United States.
Most companies have a small number of private owners It may be that a minority owner has their eyes only on In any case, if you haven’t invested in Treasury securities,
and do not publicly issue ownership interests. Business financial gain. But that goal can be in jeopardy if the majority you’ll want to know the basics. First of all, when you purchase
entities such as corporations, partnerships, and limited owners find ways to spend and reinvest money that would a Treasury security, you’re lending money to the federal
liability companies (LLCs) may have this type of ownership otherwise be distributed to the minority owner as profits. government for a specific period of time.
structure. A minority owner is an owner who owns less than Profits from a business sale cannot be guaranteed, either, if Here are your purchase options:
50 percent of the business. They may, for example, invest the sale is structured in a way that prevents minority owner • Treasury bill – Typically matures in four, 13, or 26
$50,000 in a company in exchange for a 20 percent interest. payouts. Minority owners also cannot count on the ability to weeks, although some have maturities of up to a year
Because a minority owner does not have a controlling stake sell their ownership interest, since state law often limits the • Treasury note – Matures between one and 10 years
in the business, however, they have fewer rights than majority right to force a company buyout. • Treasury bond – Typically matures in 10 to 30 years
owners. Generally, in the absence of a written agreement that However, minority owners do not have to accept the When you buy Treasury notes or bonds, you receive
expands their rights, a minority owner is only entitled to the limited default rights they have under state statutes. An semiannual interest payments, but when you purchase a
following: operating agreement and a buy-sell agreement can include Treasury bill — a T-bill — you generally buy it at a discount
• The right to vote on certain matters, such as electing the provisions that provide additional protections for minority and, when the bill matures, you receive its face value. So,
board of directors (corporation) or managers (LLC) owners. for instance, you might pay $4,700 for a 13-week T-bill and
• The right to inspect company books and financial records Prior to obtaining a minority stake in a company, get $5,000 back at the end of the three months.
• The right to receive dividends from the business (if prospective owners should consider their expectations about When investing in Treasury securities, you’ll want to keep
there is a distribution of profits) and proceeds from the sale the following types of issues: these features in mind:
or dissolution of the business • Level of involvement in day-to-day company • Price fluctuation – While your interest payments will
• The right to sue majority owners for breach of fiduciary management always remain the same, the market value of your Treasury
duty • Decision-making authority regarding company changes, security can change. So, you might not get face value for a
Outside of these basic rights, minority owners may find including the sale of the business or a merger or acquisition Treasury bond if you sell it before it matures, particularly
that, despite their investment in the company, they have little • Equity payments from company operations if market interest rates are higher than the rate you’ve been
or no ability to control the direction of the company and no • The ability to sell an ownership interest or be bought receiving. Because longer-term bonds have more payments
right to participate in daily decisions. If the minority owner out by the other owners left to make than shorter-term ones, they are more sensitive
is also a company employee, they do not have the right to • Distributions from the sale or dissolution of the company to interest rate changes and market price fluctuations.
continued employment if they are fired. They also lack the Initial expectations can be set during a discussion with • Taxes – Interest income from Treasury securities is
right to demand distributions if the majority owner does not business partners, but handshake agreements do not go subject to federal income tax but exempt from state and
make them. far enough. The agreed-upon understanding between the local taxes.
Oppression of Minority Rights minority and majority owners should be in writing and signed. In addition to the traditional Treasury bonds, bills,
The rights of a minority owner, while limited, can be Absent a written agreement that solidifies their rights, a and notes, another option is available: Treasury Inflation-
enforced based on state statutes that provide protections minority owner relies on the majority owners’ good faith. Protected Securities (TIPS). Unlike other Treasury securities,
aimed at preventing “minority shareholder oppression.” In Should that faith prove to be misplaced, a minority interest in which the principal is fixed, the principal of a TIPS can
addition, although majority owners have nearly unlimited holder may realize — too late — how vulnerable they are to move up or down, based on movements in the Consumer
discretion over how to run the company, they still have a legal the majority. Price Index for Urban Consumers (CPI-U). Once your TIPS
duty — known as a fiduciary duty — to not place their own Protect Yourself As a Minority Business Owner matures, if the principal is higher than the original amount,
interests above the interests of the company and its minority Trust is important, but trust that is not backed up by written you’ll get the increased amount; if the principal is equal to or
agreements will not get you very far if trouble arises. Some less than the original amount, you’ll get the original amount.
Answer for of these problems may not be anticipated until they arise. TIPS pay a fixed interest rate semi-annually until maturity
but, because interest is paid on the adjusted principal, the
Others can leave you grasping at legal straws.
Crossword Puzzle the limited protections that state statutes offer. It is fully amount of your interest payments can vary. As with other
As a minority business owner, you do not have to accept
Treasury securities, you can hold a TIPS until maturity or
within your power to negotiate more favorable terms as a sell it before it matures.
condition of taking on a minority owner role. Don’t let scary or gloomy predictions discourage you from
Before investing your time and money in a business considering Treasuries — they remain a good option as part
venture, it is prudent to consult a lawyer. Our business of the fixed-income portion of your investment portfolio.
lawyers can help you solidify your expectations with legally This article was written by Edward Jones for use by
enforceable documents. If you already have agreements in your local Edward Jones Financial Advisor, Edward Jones,
place, we can also advise you of your rights to bring a breach Member SIPC.
of contract or minority oppression action. To discuss your Edward Jones is a licensed insurance producer in all states
needs, please contact our office and set up an appointment. and Washington, D.C., through Edward D. Jones & Co., L.P.,
Call our office today at 561-694-7827, Elder & Estate and in California, New Mexico and Massachusetts through
Planning Attorneys PA, 480 Maplewood Drive, Suite 3, Edward Jones Insurance Agency of California, L.L.C.;
Jupiter, FL 33458. Edward Jones Insurance Agency of New Mexico, L.L.C.; and
The content of this article is general and should not be relied Edward Jones Insurance Agency of Massachusetts, L.L.C.
upon without review of your specific circumstances by competent Edward Jones, its employees and financial advisors
legal counsel. Reliance on the information herein is at your cannot provide tax advice. You should consult your qualified
own risk, as it expresses no opinion by the firm on your specific tax advisor regarding your situation.
circumstances or legal needs. An attorney client relationship is Contact us at (561) 748-7600, Sally Sima Stahl, AAMS,
not created through the information provided herein. 1851 W. Indiantown Road, Ste. 106, Jupiter, FL 33458.
To comply with the U.S. Treasury regulations, we must
inform you that (i) any U.S. federal tax advice contained in Lifestyles on page 23