Ask a Business Lawyer. Get Business Law Questions Answered ASAP.
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.
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.
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).
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.
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.
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).
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.