LLC Law Monitor: “Business acquirors sometimes give the acquired company’s management financial incentives to enhance the acquired company’s value. These are often structured as bonus compensation for achieving defined milestones, and sometimes include equity in the acquired company or in the buyer. In a recent Ohio case the buyer of a company’s assets provided incentive compensation to the company’s management, based on the profits of a division of the company. The employee was later terminated, and claimed the company had entered into a partnership with him and then breached its fiduciary obligations.”
KEYTLaw recommendation: This type of provision should be in a written employment agreement that provides for a compensation bonus in an amount equal to the profits of a specific entity or division of an entity. Be sure to define profits precisely. The agreement should state that the provision does not create a partnership, joint venture, ownership interest in the entity or any other arrangement other that the employer / employee relationship and that it does not cause the employer (or the entity if it is not the employer) to owe any fiduciary duties to the employee.