6 ms·

This post seems to be ignoring the most obvious outcome: "yes, you own 1/3, but I'm not interested or able to buy your share right now." This is why owners of

by ef4 13y ago

This post seems to be ignoring the most obvious outcome: "yes, you own 1/3, but I'm not interested or able to buy your share right now." This is why owners of small ventures think about "liquidity" events: until you have one your share of ownership is not something you can just "cash in" because you feel like it.

dragonwriter 13y ago
> This post seems to be ignoring the most obvious outcome: "yes, you own 1/3, but I'm not interested or able to buy your share right now." That's potentially a very dangerous admission if the relationship is -- as it seemed to be -- already falling apart. Absent the right kind of advance arrangements -- which clearly didn't exist -- its possible that could give the dissillusioned party the right to force dissolution.
- nostrademons 13y ago
  Without a contract or incorporation papers, there's nothing to dissolve - the business doesn't exist as an entity, it's just a couple of guys doing things and maybe getting paid for it. The money belongs to whoever's bank account it goes into, and the code belongs to whoever wrote it. If there were incorporation documents, then minority shareholders generally don't have the right to force liquidation, unless they're also creditors and the company is in violation of their credit agreement. But then, since there were no papers, there's no agreement there. Basically all you've got is two guys who are bitter because their perspectives of work vs. reward are different.
  - DannyBee 13y ago
    "Without a contract or incorporation papers, there's nothing to dissolve - the business doesn't exist as an entity, " Buzz, thanks for playing ;) This depends on the state, and a lot of states have enacted UPA. In california for example, you can create a partnership if you have two or more persons who carry on as co-owners of a business for profit[1]. Agreement is by conduct. No formalities or filings are necessary to end up with a partnership entity :) In fact, this is the language in the uniform partnership act: ""The association of two or more persons to carry on as co-owners of a business for profit forms a partnership, whether or not the persons intend to form a partnership." If you have formed a partnership, as may very well be the case in the story here, the rest of what you say would be incorrect. [1] To be ultra clear, this does not mean that there is an existing business they have agreed to co-own
    - nostrademons 13y ago
      I knew that posting a wrong answer would get me a right answer. ;-)
  - dragonwriter 13y ago
    > Without a contract or incorporation papers, there's nothing to dissolve - the business doesn't exist as an entity, it's just a couple of guys doing things and maybe getting paid for it. If its not incorporated, and there is a legally binding agreement to share the business, then (even without a written contract), it likely, in many states, would be found to be a partnership, in which case, as I recall the default rule barring some contrary agreement, any of the partners could force dissolution at any time.
- tptacek 13y ago
  I'm sure it depends on the state, but a minority shareholder is very unlikely to be able to force dissolution, right? The best plausible case for an estranged shareholder is a court-ordered buyout. It looks like this is a bread-and-butter law firm job in most states. In reading stories about how experts value shares of small businesses, suing for a buyout of a tiny software company doesn't seem rational. The suit itself will probably sink the company, resulting in zero returns for the minority shareholder. Even if the company survives the suit, the value of a share can be determined by company profits and distributions; it doesn't seem likely that the minority shareholder gets a claim on the company's operating capital. And it looks like courts may discount the value of a minority share, since it doesn't come with any control of the company.
alistairSH 13y ago
Yeah, I was thinking the same thing. Would it be normal for a minority owner of a start-up to be able to legally force the majority to buy them out? I wouldn't have thought so. The 30% owner could have sat on the shares and waited to see what happened. They were effectively free (in the sense that he didn't buy them and was apparently paid a reasonable salary as well).
- DannyBee 13y ago
  "Would it be normal for a minority owner of a start-up to be able to legally force the majority to buy them out? I wouldn't have thought so." The existential answer to this is "yes". THere are situations where you can do this. For any practical answer, you'd need to instantiate it for some tuple of "state, corporation type, event occurrence" :)
- dragonwriter 13y ago
  > Would it be normal for a minority owner of a start-up to be able to legally force the majority to buy them out? I wouldn't have thought so. It would be rules in place which explicitly controlled this, so, no, it wouldn't be normal. OTOH, with an agreement which specified ownership split and nothing else, it might be the case.
danaseverson 13y ago
Totally agree with this. I think it was an unreasonable for the 1/3 partner to force the liquidity, thus putting the company in a bad position.

by ef4 13y ago

dragonwriter 13y ago

> This post seems to be ignoring the most obvious outcome: "yes, you own 1/3, but I'm not interested or able to buy your share right now." That's potentially a very dangerous admission if the relationship is -- as it seemed to be -- already falling apart. Absent the right kind of advance arrangements -- which clearly didn't exist -- its possible that could give the dissillusioned party the right to force dissolution.

nostrademons 13y ago
Without a contract or incorporation papers, there's nothing to dissolve - the business doesn't exist as an entity, it's just a couple of guys doing things and maybe getting paid for it. The money belongs to whoever's bank account it goes into, and the code belongs to whoever wrote it. If there were incorporation documents, then minority shareholders generally don't have the right to force liquidation, unless they're also creditors and the company is in violation of their credit agreement. But then, since there were no papers, there's no agreement there. Basically all you've got is two guys who are bitter because their perspectives of work vs. reward are different.
- DannyBee 13y ago
  "Without a contract or incorporation papers, there's nothing to dissolve - the business doesn't exist as an entity, " Buzz, thanks for playing ;) This depends on the state, and a lot of states have enacted UPA. In california for example, you can create a partnership if you have two or more persons who carry on as co-owners of a business for profit[1]. Agreement is by conduct. No formalities or filings are necessary to end up with a partnership entity :) In fact, this is the language in the uniform partnership act: ""The association of two or more persons to carry on as co-owners of a business for profit forms a partnership, whether or not the persons intend to form a partnership." If you have formed a partnership, as may very well be the case in the story here, the rest of what you say would be incorrect. [1] To be ultra clear, this does not mean that there is an existing business they have agreed to co-own
  - nostrademons 13y ago
    I knew that posting a wrong answer would get me a right answer. ;-)
- dragonwriter 13y ago
  > Without a contract or incorporation papers, there's nothing to dissolve - the business doesn't exist as an entity, it's just a couple of guys doing things and maybe getting paid for it. If its not incorporated, and there is a legally binding agreement to share the business, then (even without a written contract), it likely, in many states, would be found to be a partnership, in which case, as I recall the default rule barring some contrary agreement, any of the partners could force dissolution at any time.
tptacek 13y ago
I'm sure it depends on the state, but a minority shareholder is very unlikely to be able to force dissolution, right? The best plausible case for an estranged shareholder is a court-ordered buyout. It looks like this is a bread-and-butter law firm job in most states. In reading stories about how experts value shares of small businesses, suing for a buyout of a tiny software company doesn't seem rational. The suit itself will probably sink the company, resulting in zero returns for the minority shareholder. Even if the company survives the suit, the value of a share can be determined by company profits and distributions; it doesn't seem likely that the minority shareholder gets a claim on the company's operating capital. And it looks like courts may discount the value of a minority share, since it doesn't come with any control of the company.

alistairSH 13y ago

Yeah, I was thinking the same thing. Would it be normal for a minority owner of a start-up to be able to legally force the majority to buy them out? I wouldn't have thought so. The 30% owner could have sat on the shares and waited to see what happened. They were effectively free (in the sense that he didn't buy them and was apparently paid a reasonable salary as well).

DannyBee 13y ago
"Would it be normal for a minority owner of a start-up to be able to legally force the majority to buy them out? I wouldn't have thought so." The existential answer to this is "yes". THere are situations where you can do this. For any practical answer, you'd need to instantiate it for some tuple of "state, corporation type, event occurrence" :)
dragonwriter 13y ago
> Would it be normal for a minority owner of a start-up to be able to legally force the majority to buy them out? I wouldn't have thought so. It would be rules in place which explicitly controlled this, so, no, it wouldn't be normal. OTOH, with an agreement which specified ownership split and nothing else, it might be the case.

danaseverson 13y ago

Totally agree with this. I think it was an unreasonable for the 1/3 partner to force the liquidity, thus putting the company in a bad position.