May 2, 2022

This paid piece is sponsored by Woods, Fuller, Shultz & Smith PC.

Here in South Dakota, we recognize the importance of family businesses. Did you know 98 percent of South Dakota’s farms are family businesses? In addition, family-owned small businesses generate jobs and opportunities across the state. We value these families and appreciate there are challenges both to running a successful business and maintaining the family.

In our experience, families do a great job balancing competing interests most of the time. Yet successful family businesses are not immune to business or family problems. Part of being a family and part of doing business together is the reality that disputes or issues may come up at any time.

Family transitions can bring old issues to light. And sometimes, family members can find themselves in court as was demonstrated by a South Dakota Supreme Court decision issued last summer. They may struggle to explain transactions that seemed normal for the business and the family at the time. Smith Angus Ranch Inc. v. Hurst is a good reminder to family businesses to implement basic practices to prevent disputes. For this reason, it is wise to document your business transactions and decisions.

Smith Angus Ranch Inc. v. Hurst involves a ranch corporation and is a family dispute about business transactions by a son-in-law: Hurst. Hurst’s mother-in-law authorized him to make various purchases through the ranch corporation’s checking account during several conversations. When Hurst’s mother-in-law passed away, she left the ranch corporation to her daughter and Hurst, and made cash gifts to her two other sons. The two sons believed Hurst acted without proper authority, and they filed suit for breach of fiduciary duty, self-dealing, usurpation of corporate opportunity, fraud and conversion.

Although the mother-in-law’s verbal authorization may have given Hurst authority to act on behalf of the ranch corporation and spend its funds, the lawsuit questioned whether Hurst should be able to introduce evidence of the conversations between him and his mother-in-law into evidence. Ultimately, the Supreme Court allowed the discussions to be introduced into evidence and sent the case back to the lower court.

At the time of the decision, the family had been litigating the issue for over three years, likely at great cost to the business and themselves. This litigation may have been avoided had the ranch corporation created a document evidencing Hurst’s authorization to complete these transactions.

When forming a business or working with family, no one wants to think about the possibility that conflicts may arise. But one never knows. The proper documentation of business decisions can go a long way in avoiding headaches, disagreements and even lawsuits.

The good news is you don’t have to figure this out for yourself. The attorneys at Woods, Fuller, Shultz & Smith can help you with procedures to document your business decisions and transactions. If your family business would like to discuss basic business practices or needs more complex advice, don’t hesitate to contact our firm. Woods, Fuller, Shultz & Smith is a full-service law firm equipped to help in this capacity and many others.

To reach the firm, call 605-336-3890 or click here.