Legal Question in Business Law in California

I own shares in my family's business. My father feels that because I am no longer working for the business he can take my shares away. He thinks because he is majority share holder he has the right to change the share amounts owned by people or take them away completely. When he incorporated, he did a basic S-corp. Nothing in the paper work stated that the shares were conditional.

I did not purchase the shares, they were give to me, does that make a difference? And can he just take the shares away from me?

Asked on 8/24/10, 3:04 pm

3 Answers from Attorneys

Timothy McCormick Haapala, Thompson & Abern, LLP

Your father is wrong. In addition, as the controlling shareholder, he has a fiduciary duty to the minority shareholder(s) to conduct the business to maximize the benefit to all.

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Answered on 8/29/10, 4:37 pm
Joe Marman Law Office of Joseph Marman

There are rules gtoverning the corporation. Perhaps your father was given the rights to re-take al the shares, if he is the majority shareholder.

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Answered on 8/29/10, 6:58 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Mr. McCormick is more likely correct than Mr. Marman.

Stock ownership is pretty much similar to ownership of other property, like your house, your car, your bank account and the clothes on your back. You own them, and someone else has no right to take them away - subject to maybe some contract, or some kind of lien, or the like.

Unlike other kinds of property, however, stock is pretty much intangible and, to the extent the stock itself or records of it may exist, the issuer (the company) rather than the issuee (you) is more likely to have the proof (or to have destroyed the proof, or never created any proof in the first place.

Also, companies have a tendency to issue more and more stock. Although you may at one time have owned 200 of 1,000 shares, i.e., 20% of the stock (for example), maybe the company has issued 99,000 more shares, so now you own less than 1%. That may be OK if the people who got the newly-issued stock paid as much or more as your stock was worth, but the likelihood is that the majority or controlling shareholders have been diluting the defenseless minority shareholder by issuing new stock to themselves for an insufficient consideration.

Minority shareholders have the right to inspect the books and records, including the stockholder and share-issuance records, and have the right to receive notice of and participate in an annual meeting of shareholders. I'll bet you've never received a shareholder meeting notice. I'll bet none have ever been held. That's illegal.

There's much more that could be written about this. A big difficulty in enforcing minority shareholder rights is proof of facts, since the company will have no records, or will fake them, or hide them. Another problem is reluctance to stir up family fights. Finally, many minoroty shareholders simply do not realize the extent of their rights and the extent of the duties and limitations on the corporation and its board.

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Answered on 8/29/10, 9:24 pm

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