Death by Deadlock

When two people come together in starting a business (much like when a couple decides to get married) the energy is always high, everyone is giddy about the future of their enterprise and the partners are wearing rosy colored glasses.  The last thing they want to think about is the divorce of the business.  However, I always tell my clients, use your LLC Operating Agreement or Shareholders’ Agreement, as appropriate, as your business’ prenuptial agreement.  You have to think about the worst when everyone is still feeling good about things, because when discord happens, it may be too late to have a meeting of reasonable minds, much like in marriage. Do not take the LLC Operating Agreement or Shareholders’ Agreement lightly, as this is the document that will govern how your business is run and what will happen if there is a disagreement among the members.  Many companies do not have these agreements signed or even drafted. Or worse, the partners simply grabbed a form they found online and signed it, without truly understanding the implications. Then something goes wrong, and that document that no one even read, will determine the future of your business or investment in your company. It is important to know that when there is no agreement in place, the Texas Business Organizations Code (the “TBOC”) will govern. The TBOC is silent on many issues, such as partner disputes – thus it will be left to a court to decide, unless the parties reach mutual agreement otherwise.

Lately I have been seeing many issues revolving deadlocks. Here I will attempt to summarize what is a business deadlock and possible solutions to dealing with a deadlock in your company agreements.

What is a Deadlock

A business deadlock occurs when the partners cannot agree on an issue brought to vote, and typically occurs where: (i) a unanimous vote is required, (ii) the partners are 50/50 owners, or (iii) there is insufficient majority to make the decision.

A deadlock over a major issue has the possibility of paralyzing the regular operation of the company.

What to do About a Business Deadlock

According to the American Bar Association, there are five common ways to address a deadlock. Ideally, one of these ways should be addressed in the company’s operating or shareholder agreement, as appropriate, considering the pros and cons of each scenario:

Buy-Sell Provisions

Known in the state of Texas as a “Texas Shootout,” or “shotgun,” this clause allows one partner or shareholder to essentially buy-out the interest of the other shareholder(s) upon the occurrence of a specified event, i.e. one of the partners ceases contributing time to the business.  The agreement should contemplate the manner in which the buy-out price will be calculated.

Con: The monetary value of the interest can be arbitrary and the cost of obtaining a valuation of the company for purposes of a buyout can be expensive.

 External or Internal “Tie-breakers”

Professional advisors, industry experts, or outside-boards from another sector of the company become the decision makers for the deadlocked issue.

Con: Leaving a third-party to decide on a company matter when the shareholders themselves are the most familiar with the company.

“Rotating/Alternating” or “Casting” Vote Mechanisms

Business partners take turns in holding an additional vote, or a “casting” vote. For instance, one shareholder will have the opportunity to have his/her way in making the final decision when the vote is not unanimous. During the next deadlock, another shareholder will have the casting vote. The granted casting vote is rotated throughout the shareholders and assumes precedence in every following deadlock regarding major issues.

Con:The rotation lists are difficult to draft and often leave the collective group unhappy.

 “Put or Call Mechanisms”

A shareholder insinuates a “Put or Call” during a company-defined triggering event. One shareholder is obligated to sell their part of the company, and the other shareholder(s) is obligated to buy it.

Con:Careful drafting of a “Put or Call” scenario and defining of a trigger event is critical, and heavy negotiations are typically followed.

Partition or Sale of the Company or Its Assets

Clearly segregated assets in the company are either distributed, or the company is sold and its revenues split amongst all partners. A third party usually intervenes to ease the process. Pricing and terms are established.

 Con:Pricing and terms may be difficult to establish because partners are already in heavy disagreement, and it is difficult to sell a company in a varying economy, while keeping the consistency of the value and structure of the company.

When partners cannot agree on any of the aforementioned mechanisms, or other deadlock clauses, there is a possibility of going to trial to partition the assets or otherwise dissolve the company, however this route would lead to significant time lost, expenses endured, and emotional burden on all parties involved.  This would be, death by deadlock.

#METOO at Work


1 in 3 women ages 18 to 34 have been sexually harassed at work.  71% of those women said they did not report it.
Source: Cosmopolitan survey of 2,235 full and part-time female employees, 2015

Within 24 hours from the time Alyssa Milano suggested on Twitter that people use #metoo to bring to light the prevalence of sexual harassment, the # was posted over 12 million times on Facebook.  This movement has empowered and emboldened people to speak up about being victims of sexual abuse in many forms and in different environments.  I applaud the movement and the strength it has given to the survivors.  Time’s Up.

In an office setting and from the perspective of an employer, however, this may lead unintended liability exposure if the victims of sexual harassment (i.e. the employees) are finally speaking up – and with the statistics I mention above, this is something that should not be taken lightly.

Whereas, before, someone may not complain for fear of repercussions on one’s career (as happened with me), this #metoo movement is giving victims of sexual harassment strength to believe that the serious repercussions will fall on the perpetrator, not on them.

The Supreme Court case of Faragher v. City of Boca Raton, 118 S. Ct. 2275 (1998), established that an employer is vicariously liable for the acts of its employees “but subject to an affirmative defense looking to the reasonableness of the employer’s conduct as well as that of a plaintiff victim.” See Id. and Burlington Industries, Inc. v. Ellerth, 118 S. Ct. 2257 (1998).

In determining whether or not an employer is responsible for the acts of its employees, the Supreme Court looked to see if:

  • the employer exercised reasonable care to prevent and correct promptly any harassing behavior, and
  • the employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise.

Basically, as more recent jurisprudence indicates, this means that the employer must take certain affirmative steps to prevent and correct harassment, including having a solid harassment policy and procedures.

But, having a great policy that no one reads is not enough.  A company should provide periodic training to its employees to ensure that they know exactly what to do in the event they do face harassment of any sort.  If the employees comply with the procedures, then the company has the ability to stop the harassment by taking necessary measures and liability is minimized. If the company has the policies and has provided the training and the employee fails to avail itself of the steps provided in the same, then, the employee’s unreasonable failure to take advantage of those procedures will help to minimize the company’s liability exposure. Training is therefore a win-win.

I will only briefly note that having a solid policy and providing training will not shield employer companies from liability where the harasser is the “Alter Ego” of the employer.

Who qualifies as “Alter Ego’s”?

  • president
  • owner
  • partner
  • corporate officer

Also important to note is that a company will not be shielded from liability if there is “[e]vidence that an employer did not monitor the workplace, failed to respond to complaints, failed to provide a system for registering complaints, or effectively discouraged complaints from being filed.”  See Vance v. Ball State University, 133 S. Ct. 2434 (2013).

At Begum Pelaez-Prada PLLC, we have been getting many requests from our clients to review their policies and provide training.  We would be happy to provide any further information. Feel free to reach out to me at:






DACA: What’s Next?



Marisa Balderas-Flores

We are honored to have Marisa Balderas Flores, a fantastic immigration attorney, join our practice as Of Counsel focusing on immigration issues. With all of the changes a new Presidency brings, particularly to the area of immigration, we asked her to write a blog on a topic du jour – DACA. Here is her take on DACA:

Since the election of a new President in November 2016, the immigrant community has been instilled with a sense of fear and uncertainty as enforcement efforts have been stepped up across the nation by Immigration and Customs Enforcement (ICE). These enforcement efforts have even targeted some Deferred Action for Childhood Arrival (DACA) recipients.  Under the program started via Executive Order by President Obama, certain individuals brought to the United States as children and who meet the presence and good moral character requirements are protected from deportation for two years and are eligible for a work authorization permit.  Now with a new President in office, there is concern that the DACA program will be terminated, and that the Executive Order promulgated by President Obama will be overturned. Additionally, DACA recipients are left wondering if they will be able to renew their DACA status.

The DACA program has benefitted over 700,000 individuals in obtaining work authorization permits, driver’s licenses and other benefits, and as of this writing, remains in effect. For those individuals needing to renew their DACA status, you may continue to do so for as long as the program remains active. Furthermore, for individuals that meet the eligibility requirements and that may have still not applied, new applications are still being accepted and processed by USCIS.

While the future of the program may be unclear, for now DACA continues to be an  avenue for eligible applicants to obtain work authorization, among other benefits.

If you have any questions regarding your DACA application or renewal, please contact Begum Pelaez-Prada Law.

By: Marisa Balderas Flores, Of Counsel-Immigration

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Understanding the Electoral College

Unless you live under a rock in a remote village with no TV, internet or smartphones, you know that tomorrow is election day. If you keep up with the news, then you know that their focus is now and will be through tomorrow night, the magic 270 electoral votes needed to win the presidential election.

But what does that mean?  What are electoral votes? What happened to “one person, one vote”? Where did this electoral college system come from? Well, below I try to answer some of those questions.

History of the Electoral College
In 1787 the Constitutional Convention considered several methods of electing the President. Among the options considered were selection by Congress or by governors of the states. But, all the options considered had inherent issues. For example, the presidency had to be independent of Congress, and so selection by Congress was not a suitable option. Another issue was that of political manipulation, which could rear its ugly head into selection of the President if elected by popular vote. So long story short, none of the options considered were viable. Late in the Convention however, a select Committee devised the electoral college system, which still remains in place as adopted back then, with certain tweaks here and there, including increasing or reducing the number of electors of a particular state based on changing populations. This plan was met with widespread approval, and the delegates felt that it properly reconciled differing state and federal interests, provided a degree of popular participation in the election, gave the less populous states some additional leverage in the process, preserved the presidency as independent of Congress, and generally insulated the election process from political manipulation.

What is the Electoral College?
The electoral college is basically a group of people selected by each state, which then vote to elect the President. The Constitution gave each state the freedom to determine how the electors of that state should be selected, in stating that the electors of each state be determined “in such Manner as the Legislature thereof may direct “(U.S. Constitution, Article II, section 1). In the majority of states (34 of them), the electors are determined by the respective political parties, however the other states have varying methods of choosing their electors.

“Wait…back up. So, these people or “electors” elect the President and not me?” You may be wondering.

Yes, that is correct. When you proudly vote for your desired candidate for President, you are not actually voting for the President or Vice President of the United States, rather your vote is for an elector. So, essentially, the people elect the electors and the electors are expected to vote for the presidential and vice presidential candidates of the party that nominated them. Notwithstanding this expectation, individual electors have sometimes not honored their commitment, voting for a different candidate or candidates than the ones to whom they were pledged; they are known as “faithless” electors. In fact, the balance of opinion by constitutional scholars is that, once electors have been chosen, they remain constitutionally free agents, able to vote for any candidate who meets the requirements for President and Vice President. Faithless electors have, however, been few in number (in the 20 century, one each in 1948, 1956, 1960, 1968, 1972, 1976, 1988, and 2000), and have never influenced the outcome of a presidential election. (see

The Magic Number – 270
In order to insure wide acceptance of a winning candidate, the Constitution mandated that a majority of electoral votes was necessary to elect a President. The Constitution gave each state a number of electors equal to the combined total of its membership in the Senate (two to each state, the “senatorial” electors) and its delegation in the House of Representatives (currently ranging from 1 to 52 Members).  Currently, the number of electors per state ranges from 3 to 54 (in California), for a total of 538. Thus, in order to win a presidential election, a candidate must secure at least 270 electoral votes.

So, what happens if there is a deadlock among the electors? Well, the Constitution covered that too. If the electors reach a deadlock, then the House will determine the next President of the United States.

The House has only made this decision one time in the history of the United States, and that was in 1824 when they selected John Quincy Adams over Andrew Jackson, even though Jackson had won the popular election.

Last interesting tid bit
November was chosen as the month to hold Presidential elections because the harvest was in, and farmers were able to take the time needed to vote. Tuesday was selected because it gave a full day’s travel between Sunday, which was widely observed as a strict day of rest, and election day. Travel was also easier throughout the north during November, before winter had set in.

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Whether you are a writer, a musician, a photographer, or any other kind of artist, a basic understanding of copyright law is one of the most important tools of your trade.

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Citizenship Liberty

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Corporate Law

Begum Peláez-Prada PLLC is committed to the continued success of your company. Our main priority is to provide clients with a business plan designed to produce long-term results.

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