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Bell Nunnally’s Ben Riemer Offers Suggestions for Improving the Business Divorce Process in Texas

Bell Nunnally attorney Benjamin L. Riemer published the Law360 article “Business Divorce Could Be Better Balanced in Texas.” The article dissects the current process in Texas that occurs when a business partner elects to exit an organization fully, including financially. The procedure, referred to as a “business divorce,” is caused by any number of underlying problems as Riemer points out, including disloyalty, usurpation of company opportunities or misappropriation of company funds.

Riemer notes that in Texas a major point of contention in business divorce matters is that, under the Texas Business Organizations Code, a company or one of its governing principals facing accusations by a partner looking to extricate themselves from the organization, is able to tap company funds for legal defense purposes while the accuser is limited to using only their personal funds. In addition, as this individual is still personally invested in the organization, they are actually financing their opposition simultaneously.

Several solutions to this issue are offered by Riemer. One option is for companies in the formation process to carefully consider the wording of any indemnification provision included in their organizational documents. While they will want to ensure personal indemnity from third-party claims, they may also want to specify that such protection does not apply to lawsuits brought between the parties themselves. Beyond this, Riemer notes that the state legislature could also remedy this imbalance by permitting the plaintiff access to company funds in a business divorce proceeding.

Riemer concludes his article by offering that, for the sake of Texas’ business environment, the policy issues raised in business divorce matters need to be addressed.

The article’s full text is available here and is available on Law360’s website.

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