According to Chron.com, bylaws set forth the rules and regulations by which the corporation will operate. Not only are bylaws necessary, but they must comply with state corporate law. For example, the bylaws should set the time and date that the annual shareholder meeting, which state law requires, will take place. The board of directors holds an organizational meeting to write corporate bylaws shortly after filing the articles of incorporation with the state.

However, bylaws only go so far. They do not say anything about shareholders’ rights or their obligations to one another. Though not required by state corporate law, a shareholder agreement does address the relationships between shareholders.

For example, someday you may wish to withdraw from the company voluntarily, or unfortunate circumstances may arise that render you unable to continue your involvement in it. The shareholder agreement may include a buy-sell provision that would clearly describe what should happen in this situation. This may help to avoid business ownership disputes that could otherwise result.

If there is a dispute between the corporation’s bylaws and the shareholder agreement, the latter usually takes precedence. The shareholder agreement should include a provision for when a situation like this arises. Following the resolution of the conflict, the next step should be to amend the bylaws to reflect the change and revise the wording that caused the initial dispute.

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MarketWatch explains that when you give equity, you give a share of your ownership in the business, which is not something to take lightly. You should always protect yourself with an agreement on what happens to the ownership of the equity if the employee leaves the company.

In granting him or her ownership in your company, you give that employee some control. The employee has certain rights as an owner and access to documents that he or she would not usually have as an employee. It gives the employee a lot of leverage that could be bad if he or she leaves the company, especially if you fire him or her.

Your employee will have voting rights and could have an impact on the running of your company. It is possible for him or her to cause issues even when he or she is leaving the company, so you need to protect yourself, other owners, employees and the business.

A better alternative to providing equity is to offer some other type of benefit that is highly sought after, such as excellent medical insurance or a stellar vacation/time-off policy. These options do not affect your business as much as giving away equity can. This information is for education and is not legal advice.

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To carry the divorce analogy further, many of the reasons why business partnerships break up mirror the reasons why marriages break up. For instance, the goals and objectives of business partners may diverge over time. Or the partners can simply start getting on each other’s nerves, culminating in more time spent arguing than on running the business.

Partnership agreement

Any time you enter into a business partnership, you and the other partners should negotiate, draft and sign a written partnership agreement that spells out in detail all the following:

• What ownership percentage each of you will have
• What percentage of business profits each of you will receive
• What percentage of business losses and liabilities each of you will be responsible for
• What responsibilities each of you will have with regard to managing and running the partnership
• What buy-out provisions and methodology all of you agree to in the event one of you dies or decides to leave the partnership

The more specific and detailed your partnership agreement is, the easier and less contentious the break-up will be should irreconcilable differences arise between and among partners.

This is general educational information and not intended to provide legal advice.

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If a couple jointly owns a business, the fate of that business after a divorce depends on the unique situation. Many cases, however, require complex asset distributions.

Divorce mediation for business owners

A couple that owns a business together should strive to reach a divorce settlement via mediation rather than taking the case to court. Mediation leaves the power in the couple’s hands as to what to do with a jointly owned business, rather than giving the final decision to a judge. A common solution is for one spouse to buy out the other. Another is to sell the business and to split the profits equitably. During mediation, the couple will ultimately be able to decide the fate of the enterprise.

Distribution of marital property in North Carolina

North Carolina is an equitable distribution state, according to § 50-20. Based on this law, the courts will divide all marital property fairly between the spouses, rather than splitting it 50/50. Marital property refers to all assets one or both spouses acquire during the marriage. Nonmarital property, or property acquired prior to the marriage, will not become part of the equitable distribution.

If two people started a business together during the course of their marriage, the business would fall under the category of marital property in North Carolina. It would thus become relevant during a divorce hearing. Should the divorce case go to court, a judge would listen to both sides and take many factors into consideration to determine how to split marital assets, including the jointly owned business.

The factors a judge may consider include the income, assets and debts each party accumulated during the marriage, as well as how long the marriage lasted and any child custody matters. Once the judge has received all the information he or she needs to make a decision, the judge will decide how to divide interest in a business.

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A partner may decide to pay out the spouse with stock. In this case, the spouse may become a partner his or herself. This decision affects your stock and the decisions made in the company. If the ex-spouse has voting rights, then he or she will be a part of how you run the company. If the spouse already worked for the company, this may not be a problem. If you have preferred instead of common shares, then your partner cannot transfer voting rights.

On the other hand, a business partner may decide to liquidate interest and pay his or her spouse. If your partner chooses the second option, then the company undergoes a valuation process. This determines the value of the interest. Now, this process is more invasive. It involves providing financial information and other documents to a third party. In addition, employees of the company may have to perform interviews.

After a divorce, companies concerned with the information shared during the process may insist on a confidential agreement. This will ensure that a third party cannot use any information about your business for other matters.

This information is for educational purposes regarding the divorce of a business partner. By no means should the information here serve as legal advice.

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As Chron.com points out, a non-solicitation agreement is not the same as a non-compete clause. It is true that employees can feel alarmed if they feel an employer is trying to strictly limit their future work prospects. However, a non-solicitation agreement does not ask an employee to never compete with a current employer at a future time. An employee is just being bound not to use company information, such as a client list, to unfairly take away business from the current employer.

The typical provisions of a non-solicitation agreement are something many employees can respect. A person who has aspirations to run a company someday can likely empathize with an employer’s efforts to protect their operation. It may even inspire employees to take similar actions to protect their own sensitive information in the event they start their own companies at a later date.

 Even so, some employees do not like the idea of being restricted in their future business endeavors and may decide to leave a company rather than sign such an agreement. However, packaging a non-solicitation agreement with an incentive plan can make the agreement more palatable. Some companies offer a cash bonus to be earned over time and a deferred bonus that an employee receives after helping the company achieve a performance benchmark. This can motivate an employee to stick around the company for a while.

Non-solicitation agreements are worth pursuing because they can be effective, plus courts look favorably on them since they do not excessively limit the work prospects of an employee. Since businesses may draft non-solicitation agreements in different ways, this article should not be read as legal advice, only for your personal educational benefit.

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Three more information-privileged Company Q employees, Defectors B, C and D left Company Q’s domain, attracted to Defector A’s new ventures. The enterprising defectors absconded with some nice parting gifts in the form of Company Q’s trade secrets and client database.

The case of the trade secrets’ disappearance

Company Q claimed it discovered that Defector D, upon his resignation, had left his personal Facebook page open on a Company Q computer. Company Q felt justified in snooping. It is a well-known axiom that those who read others’ diaries are not happy after the experience. Company Q ordered its IT department to install software to covertly search Defector D’s Facebook conversations with his colleagues during the prior months before A through D left its employment; Company Q continued to observe real-time Facebook interactions among its former employees.

Not surprisingly, Company Q did not expect to see all the prior and current posts flying back and forth between the defectors. Company Q was profoundly unhappy when it discovered its valuable trade information was now firmly in the defectors’ hands; Company Q noted the competitors vigorously put the stolen trade secrets to good use.

The case of the federal court appearance

Company Q was not amused and sent its capable legal team to New Jersey federal court to file a stiff lawsuit against the former employees and their new business ventures. Company Q posited breach of loyalty, theft of trade secrets, attempts to lure away Company Q’s clients and other unsavory activities. The court disapproved the betrayal and awarded a preliminary injunction to stop the competitors from siphoning its clients away and handed down a temporary restraining order.

The case of circuit court nonacceptance

The defecting employees promptly appealed. A forensic investigator supported Defector D’s statement that he had logged out of his personal Facebook account before he resigned; therefore, Company Q had violated his right to privacy and sifted through his posts with unclean hands. To the four defectors’ dismay, the Third Circuit Court of Appeals was not impressed by the “unclean hands” gambit; furthermore, the court remonstrated that no amount of unclean hands were sufficient to sway its decision in this particular case. It upheld the decision of the lower court.

Business owners who are victims of defecting employees who help themselves to trade secrets should be careful before risking a privacy lawsuit. Other courts have ruled against companies who accessed an employee’s private communications, even when the defector used company-owned technology. Company Q prevailed in this instance, but others may not encounter similar success. When trade secrets walk out, owners may want to obtain representation to steer them away from an uncertain court battle. Courts can act unpredictably toward invasion-of-privacy issues.

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