3 ms·

Ask HN: What to do when a company shuts out its shareholders?

• alain94040 17y ago
  Which state is this company incorporated in? That's the key question. As a shareholder, you have fewer rights than you'd think. On the other hand, you can be a major nuisance to the owner if you want to. I dont quite see a win-win here. What are you trying to achieve?
  • throwingaway 17y ago
    It is an Illinois Corporation. The business has been tanking in recent years, mostly due to the shady practices of the owners. At this point I'd simply like to cash out my shares for a fair price, whether it's selling them back to the company, to another shareholder, or to a competitor.
    • startupcomment 17y ago
      As you hold shares of a small closely held corporation, you'll probably have a tough time selling your shares to anyone other than the principal shareholder or the corporation (and they may not be willing to buy). In addition, your right to sell your shares to a third party may be restricted, as has been noted above. If the business folds, you may be able to claim a capital loss to the extent of your basis in the shares. I'm not certain of this, however. Best to consult an accountant. Good luck!
• brk 17y ago
  Disclaimer: IANAL Since it is still a private company, you're not entitled to much, really. They are supposed to be holding some sort of board or corporate meetings, if for no other reason than to maintain themselves as a corporation for the legal benefits. You are supposed to get, or have access to, copies of the board meeting minutes. To cut to the chase, you're not going to get anything out of those shares. The company has no enforceable obligation to buy them from you, and unless they got their legal contracts out of a pop-up book, there will also be a clause in there that would prevent you from selling the shares to a competitor. Besides, what would you sell the shares FOR, money-wise? You don't even know what the company is worth, or (I'm assuming here) what yours shares represent in proportion to the total. And, why would a competitor want semi-worthless shares in another company anyway? For the most part, I would suggest you let it go and chalk it up to a learning lesson.
  • throwingaway 17y ago
    For the most part, I would suggest you let it go and chalk it up to a learning lesson. And what is the lesson?
    • brk 17y ago
      And what is the lesson? Get better documentation of total shares in the company next time Understand that shares granted by a private corporation will tend to have little, if any, real value until such time as the corporation goes public or gets sold. If neither seems probably, you basically just own "paper" Don't be swayed by shares of stock Don't take stock in lieu of pay (granted, you might not have had much other choice here). Make sure there is a clear, documented, signed understand of what exactly you can DO with those shares.
      • jacquesm 17y ago
        Every corporation has articles of incorporation, bylaws and there may even be a shareholder agreement. Any or all of the things you say may or may not be applicable depending on the existence and contents of those documents. OP may have more rights and possibilities to recourse than he thinks, being a shareholder is not 'all bad', there are plenty of laws that govern your rights as a shareholder too. At a minimum there has to be an annual report and a once per annum general shareholders meeting, if the percentage the three hold is large enough they may even be able to convene such a meeting. Seriously, get a lawyer if the stakes are high enough. If it's a couple of grand your talking about let it go and hope that some day they get bought out, then you will be in the drivers seat (they won't be able to sell without your consent).
• jacquesm 17y ago
  Get a copy of the corporate bylaws and go to a lawyer, this is much too complicated without further background to be answered here. I take it that you can prove that those shares were transferred to you. You can offer the shares to a 3rd party but the bylaws probably state explicitly that you have to offer the other shareholders first right of refusal.
• grellas 17y ago
  As a minority shareholder in a closely held corporation, your rights will be defined by the governing corporate law (in your case, that of Illinois) and by any charter documents or agreements that may create contractual rights of some kind. Above all, see a lawyer in your local jurisdiction to get advice on this. I am a lawyer but obviously can't give legal advice in this type of forum. In the abstract, however, the following principles tend to apply: 1. Shareholders in a closely held corporation generally cannot force the company to back back their shares. Exceptions exist - for example, if you have a shareholder agreement in place that gives you such a right or, in some states, you might have what is called a "statutory close corporation," which can have intricate contractual provisions defining its corporate structure. Check with an Illinois lawyer on this. 2. Minority shareholders generally do not have a right to inspect board minutes (again, your local laws may vary) but do have a right to get annual financial information and to inspect certain other corporate records. 3. When you received your shares, you may have signed documents giving the company or other shareholders a right of first refusal in the event you attempted to sell or transfer your shares to a third party. If you did, then you will need to first obtain an offer and then first offer the shares to whoever holds such a right on the same terms before you can sell them to the third party. 4. Securities laws generally also forbid any immediate resale of the stock. If you have held the shares long enough, however, you will normally be allowed to resell them absent any specific restriction such as a right of first refusal. However, the market for illiquid shares of this type is usually nil. 5. It is usually very difficult and expensive to enforce legal rights as minority shareholders. Many states prevent you from filing suit directly against an incompetent management. Even if they are doing things wrong, your remedy usually is to file what is known as a shareholder derivative action, which means suing in the name of the corporation to try to recover monies for the benefit of the corporation. A derivative action tends to be a clumsy and expensive vehicle for most minority shareholders unless it is an unusual situation where the stakes are high. On the flip side, some minority shareholders will use this as a way of harassing the company until it is motivated to get rid of them - it sounds like you have grounds to file such a suit, but you will need to be able to fund it. 6. You can insist that the company hold annual shareholder meetings and give you whatever information your state law requires in such a meeting format (usually, it is a basic financial report). If they refuse to hold an annual meeting, you can sometimes complain to your state's corporate division, which often has an enforcement arm having special powers to compel such meetings. 7. If you hold a specified minimum percentage of the corporation's stock, you can file an action for involuntary dissolution of the corporation. In California, this number is one-third or more of the outstanding stock. Check with a local lawyer to see what you need in Illinois. In an action for involuntary dissolution, provided you can show grounds, you can get a court to force the sale of the company's business or otherwise to force a distribution of its net assets (or the value thereof) to shareholders. Having said the above, if you and the others hold at most a few percent of the company, you are likely stuck as far as what you might be able to do practically through formal legal remedies. Before concluding this, though, do the record inspections and consult with a lawyer.
• tokenadult 17y ago
  Closely held corporations ought to have buy-sell agreements, which are legally enforceable contracts, at the beginning. But if in fact the company is tanking (= a share of ownership in the company isn't worth much), this may not be worth suing over.