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Rights

Shareholder Rights to Access to Books & Records

Under Texas law, shareholders of corporations and members of limited liability companies (“LLCs”) have the right to inspect the company’s books and records, provided they have a proper purpose. This right, outlined in the Texas Business Organizations Code, ensures that investors can assess the financial health of the company and monitor for potential misuse of assets or self-dealing.

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Preemptive Rights: Anti-Dilution of Shares

In corporations and closely held companies, ownership is determined by the number of shares held. For example, a shareholder owning 1,000 shares in a company with 10,000 total shares has a 10% ownership stake. However, this ownership percentage can be threatened by dilution, a common concern for minority shareholders. For example, if the company issued an additional 10,000 shares, that 10% stake would then drop to 5% of the company.

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Understanding Drag‑Along Rights: Why They Matter in Company Sales and Investments

Drag-along rights are contractual clauses, typically found in shareholder agreements, that empower majority shareholders to compel minority shareholders to participate in a company sale. These provisions play a significant role in aligning shareholder interests, especially when majority owners wish to proceed with a transaction.

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Representations and Warranties in Mergers and Acquisitions: What Business Owners Really Need to Know

In mergers and acquisitions (“M&A”), the primary transaction agreement typically includes representations and warranties (or “reps and warranties” or just “reps”) from each party to the other. These statements address various aspects of a party’s status, business, assets, liabilities, properties, condition, operating results and future prospects. Representations and warranties often span 15 to 30 pages within the transaction agreement and may extend further when referencing definitions. Drafting and negotiating these terms is a significant part of any M&A deal.

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