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

1. Family-Business
Default Rules

2. Dimas Flores Construction Inc. &
Casitas Flores LLC

3. The majority of U.S. businesses are
family owned

4. 35% of the
are family owned and operated

7. Contractually Protecting
The Family-Business

8. Family-Business
Default Rules

9. 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.

10. “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.

11. operating clause that allows the
incorporation of
oral agreements and implied
agreements
1st Default Rule...

12. 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.

13. 2nd Default Rule
Right

14. 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.

15. 3rd Default Rule...
Limit equity’s role in a family-business

16. Waiver of default rules must be clearly negotiated
4th Default Rule...

17. Application of the Default Rules

18. What state should adopt the
family-business default rules?

19. Maine