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Ask Michael Lykken, Esq Your Own Question
Michael Lykken, Esq
Michael Lykken, Esq,
Category: Business Law
Satisfied Customers: 85
Experience:  Partner at Soares & Lykken, Attorneys at Law
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17 Jan. 2000 received share of business. Note said"...Dec.

Customer Question

17 Jan. 2000 received share of business. Note said"...Dec. 2000 you will receive 1% share of the business (non-voting shares)....Dec. 2003 further 1% share ...." History: Dec.2013 laid off (wrongful termination)after 15 years with company. While employed several attempts to get 2% business profit were not successful. Question: 1. What are my rights from share ownership agreement as above? 2. Am I entitled to 2% profit sharing for 2003-2013 and going forward after 2013 termination? 3. How to make sure I will not be left out if company is sold. I am not registered in company documents as co-0wner. 4. How to ensure that I am registered as 2% co-owner in company registration documents. xxxxxxx xxxxxxxxx***@******.***
Submitted: 1 year ago.
Category: Business Law
Expert:  Attorney2020 replied 1 year ago.

You arguable are entitled to 2% ownership of the business. You should have received 2% share of profits throughout the life of the busies regardless of whether or not you are employed by the business. It appears that the business offered you this ownership right to keep you happy while working for the company but does not want to actually follow through with the arrangement.

I hope that helped. Please ask any follow-up questions. Please rate my answer so that I may be credited for my time. I thank you in advance for your cooperation. Thank you.

Expert:  Michael Lykken, Esq replied 1 year ago.

Hello,

My name is ***** ***** I am an expert with Justanswer. This situation isn't very clear, and the answer to your questions depends on what written documentation you have for the shares. You mention a note, but without seeing the "note" it is difficult to determine what binding effect it may have. You state that you received a share of the business, which implies that you have shares issued in your name. However, it isn't clear what the type of share is that you have, and what rights that class of shares has. The bylaws would state the rights for each class of share, so you would need a copy of those bylaws.

If you have not been issued shares, and there is sufficient evidence to show that there was an agreement for you to share in the profit of the company, then you would have to file a lawsuit to compel the company to issue you shares and the compensation owed. Also, if you haven't been issued shares you would not be able to stop a sale of the company without a lawsuit while this issue is being settled. There could also be an enforceable promise to give you shares, and this would also have to be resolved with a lawsuit. If you have an enforceable promise, then you would be entitled to the share of the profit whether you work for the company or not.

Customer: replied 1 year ago.
Hi Michael,I have just received your answer (Friday 3:15 pm PT). Thank you very much.Let me think it over and I will get back to clarify some questions.Best regards,Janusz
Customer: replied 1 year ago.
Hi Michael,
My internet connection was not quite OK so it delayed mu communication.
I understand it is a continuation of the same topic.
1. What I have is a letter on the letterhead signed by company's president that states
what I quoted.
2. The letter states .."share of business.." but no formal shares were ever issued.
3. Was that company's responsibility to issue shares?
4. Am I entitled to business profit percentage (2%) over theses years and going forward?
5. Was it company's responsibility to pay above business profit percentage to me?
6. Is there any period of time after the note date that makes agreement expired?
Please let me have answers.Janusz Ramotowski
Expert:  Michael Lykken, Esq replied 1 year ago.

Hi Janusz, the fact that you have a letter from the Company President is good. Was this in exchange for your service to the company? Without seeing the actual letter, it is difficult to say that there was a written agreement to give you stock in the company. Stock generally can only be issued based on consideration of cash or services. So, this could be a promise to give you stock based on service you provided to the company by your work. Further, you provided your services to the company with an expectation and understanding that you were an owner of 2% of the company. So, you may have an enforceable right there. You may have to file a lawsuit if the company doesn't respond to a demand for the stock, but if you are successful you would be able to go back to 2000 and 2003. Regarding preventing a sale of the company, the only way to do that would be to file a lawsuit while your rights are litigated. The letter from the company president, based on your assertion above, states that you would get non-voting stock. This means that you would only hold an economic interest in the company. That alone would not be able to prevent a sale since the stock is non-voting. However, the directors and officers owe the shareholders fiduciary duties, and those duties would protect you in a sale (only so long as you have actual stock issued to you).

Customer: replied 1 year ago.
Hi Michael,
Thanks for fast response. I addition to shares promise as quoted before the letter states: "We look forward to you being an integral part of this business for many years to come, and and hop-e we will all derive great financial and personal satisfaction
from company(company's name here). Thanks again for all your wonderful efforts and dedication to building the business."
Now you have all the elements of the agreement letter. Do you still have to see it?This is private company in California, family held, not a public company . I do not understand what you mean by "stock in the company"? What demand for stocks or shares mean?
Again, am I entitled to business profit sharing (2% of profits) for all these years? They (Family) certainly paid themselves a profit every year plus all extra expenses showed for tax purposes as business expenses (Trips, airfare, food, restaurants, cars etc.) were in fact profit sharing.
So what are my rights? Did my rights expire because I was paid nothing?Thanks,
Janusz Ramotowski
Expert:  Michael Lykken, Esq replied 1 year ago.

Hi Janusz, so it looks like they offered to give you 1% of the non-voting stock in the company in December 2000 and an additional 1% in December 2003. You worked for the company, so you held up your part of the bargain (so to speak). This is especially true where the president cited your "wonderful efforts and dedication to building the business". So you could have a case to pursue the stock you should have been given. Any corporation in California (whether public or private) has stock, and you have to be a stockholder to vote on it or be paid any share of the profit (depending on the type of corporation). The letter states that you would be getting non-voting stock, so you would not get to vote but you would get a share of the profit. If they refuse to issue this to you, you would have to file a lawsuit against the company for a declaration that you own 2% of the company and for an order to issue you the required stock in the company.

Customer: replied 1 year ago.
Am I entitled to profit sharing (money) for last 15 years? Is there any expiration (it is called differently but I do not recall the name of it) of my right to stocks or profit sharing? Is there a difference between stocks and profit sharing?Janusz Ramotowski
Expert:  Michael Lykken, Esq replied 1 year ago.

There can be profit-sharing without issuance of stock. This isn't that situation. In this case, if you can establish that you should have been issued stock back in 2000 and 2003, you would have a right to a share of the profit for the subsequent years. This is somewhat dependent on the type of corporation (C Corp or S Corp). There wouldn't be any expiration date either in your situation.

Customer: replied 1 year ago.
Michael,
Sorry again problem with internet. Should be OK now.
Same topic: Company's expert has valued entire company at less than $4 million dollars.(in my opinion it is more than $12 million). Company's expert has valued my claim for 2% ownership at $8,000.00.(By the way 2% is $80,000). They say that "this discount is based upon the fact that the company is not publicly traded". What is your opinion?
Janusz Ramotowski
Expert:  Michael Lykken, Esq replied 1 year ago.

Hi Janusz, generally you do see discounts for valuations like this. Primarily they are for lack of marketability (the stock is hard to sell) and lack of control. That amount of discount ($72,000) seems high. You would want to have your own business appraiser do a valuation for you, and you also have the unpaid profits (if any).

Customer: replied 1 year ago.
Hi Michael,
Thank you and I need anther professional advice from you.
My lawyer says:..." that company is not required to pay out the profits each year and I am entitled to 2% of dividends paid out, which is different than profits". What does it mean?Janusz RamotowskiJanusz Ramotowski
Expert:  Michael Lykken, Esq replied 1 year ago.

Hi Janusz, it somewhat depends on the type of corporation (S-Corp or C Corp). When a corporation pays out profits it will do so as a dividend or a bonus. Often times companies will pay these dividends or bonuses out at the end of the year for tax purposes, so you would need to see what company did each year. Essentially, if the company paid out a dividend or a bonus you could make an argument that you were entitled to a payment as well.

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