How Disputes Form When Multiple Entities Participate in Business Ownership.

The law concerning business organizations in Rhode Island and nationwide can be a complicated topic. There are several forms of businesses that people can participate in, including sole proprietorships, partnerships, corporations, LLCs, as well as others. Complicating matters further, several business organizations, with different owners and members, can be behind what appears to be a single business. The Rhode Island Superior Court recently issued a judgment in a case between two former friends concerning the structure and decisions of various business entities that were formed in relation to a proposed restaurant.

According to the facts discussed in the appellate opinion, the plaintiff in the recently decided case is a woman who practices law as an attorney involving complicated business transactions. The defendants are a married couple who sought to construct and operate a restaurant near Westerly, Rhode Island. The parties were social friends, and when approached by the defendants about offering a loan or investment in the restaurant, the plaintiff agreed to invest approximately $120,000 in the venture. In exchange for her investment, the plaintiff was granted a 14% interest in an LLC that was formed to manage the real estate holdings for the restaurant, as well as a $20,000 promissory note.

According to the contract that accompanied the investment, the plaintiff was not granted any ownership interest in the restaurant itself, which was controlled by another corporation that was owned and managed exclusively by the defendants. After entering into the agreements, the defendants managed and used the plaintiff’s investment in the business. Later, the plaintiff sued the defendants over decisions made concerning the operation of the restaurant and the assets of the corporation that controlled the restaurant. The plaintiff sought substantial judgments for fraud and breach of fiduciary duty against the defendants.

At trial, the parties testified, as well as an attorney who prepared the investment documents. The trial court gleaned from the evidence that the plaintiff knew or should have known that she was not given any interest in the company that directly owned and managed the restaurant. The court noted specifically that the plaintiff was a sophisticated attorney who would almost certainly understand the agreements that she entered into. As a result of these findings, the majority of the plaintiff’s claims were denied. The Court did award the plaintiff interest and penalties on amounts due from the $20,000 promissory note, which the defendants had failed to pay.

The formation of business organizations in furtherance of a commercial or industrial process can be made simple, but it rarely is. The types of organizations available to operate or incorporate a business each have their own benefits and disadvantages, and different parties may have varying interests in whatever entities are formed to operate a business. If real estate is involved, the process can have further complicated. Anyone seeking to start a business should have quality legal advice throughout the process to prevent misunderstanding and conflict.

Are You Looking for a Qualified Rhode Island Business and Real Estate Attorney

If you or an associate is seeking to purchase real estate or start a business, it may be in your favor to utilize one of the various business structures available under Rhode Island law to limit your liabilities and protect your investment. If starting a business with others, it is important to clarify the duties, rights, and obligations of all parties prior to entering into an agreement. The experienced property and business attorneys at Bilodeau Capalbo can assist you in every stage of business creation and management. From the formation of your LLC to managing unexpected conflicts between partners, we can help ensure that your rights are protected throughout the process. Contact our offices today and schedule a free consultation by calling 401-300-4055.