Legal Question in Business Law in California

A twenty to one stock split should not have the impact you are saying. You should still own 8%... but twenty times the original number of shares.

If they are issuing new stock or if there is a dilution of your stock value something else is going on and you need to bring the paper work in to see a lawyer who understand securities and corporate law. This is a complicated area of the law and you should not attempt to navigate it alone. Most of these issues will be governed by the by-laws and any other agreements originally entered into to. So make sure you bring those along with any corporate minutes you have, in addition to the recent descriptions of what is happening to the lawyer. Time is sensitive so move quickly and good luck.

I agree with the first part of the previous answer, in that a stock split, per se, does not change your percentage of ownership.

As to the dilution of your ownership, first, you'd need some evidence going beyond a mere stock split to establish that you are being diluted. You may very well have such evidence, or at least a well-founded suspicion, but a stock split in and of itself isn't dilutive.

If the corporation is issuing shares to others, but not to you, in any way that decreases your holdings below your initial 8%, this may or may not represent dilution depending upon the definition of "dilution" chosen. It is "control dilution" because your percentage of voting control is being reduced - possibly not important because at 8% you probably couldn't elect a director or exert voting control anyway. However, it isn't "value dilution" if the company receives adequate compensation for each new share issued, nor "earnings dilution" if net per-share earnings keep pace.

Nevertheless, what's going on here may very well be unfair and perhaps is illegal. I would start an inquiry beginning with the articles of incorporation, bylaws and any shareholder or investor agreements, to look for possible breaches. Next, the corporation's financing and share-issuance activities should be scrutinized under both state and federal statutes. At the state level, this would include Corporations Code section 409(e) requiring a corporation board to state by resolution its determination of the fair value in monetary terms of any stock issued for other than money, CC 415 re fraud or illegal practice in the issuance of securities; and 2251 re issuance of shares with intent to defraud.

The corporation and its officers and directors are quite likely also in violation of one or more other California statutory requirements in connection with the issuance of the new shares and with ordinary corporate governance. For example, is the number of shares issued properly authorized in the articles of incorporation? Has the corporation conducted regular and properly-noticed meetings of shareholders?

Finally, you can demand access to corporate books and records, including shareholder records, financial information, and minutes of meetings, and can take your lawyer and accountant with you.

Straight out of The Social Network. This is exactly what was done to Edwardo Saverin when Facebook got its first major round of venture capital. He settled for an undisclosed large amount of money. The last line of Mr. Whipple's answer holds the key: "take your lawyer and accountant with you," i.e., this is no kind of situation for internet answers or do-it-yourself lawyering.