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Private Stock Sale And Shareholder Rights

Family Law Discussion Forum

Private Stock Sale And Shareholder Rights

Postby Crayton » Mon Dec 05, 2016 9:12 am

First, I own 36% of an LLC in NYS.  I resigned as a manager in March due to health concerns, ethics, conflict with partners.  I also believe I uncovered fraudlent activities on the parts of 2 of the other 3 business partners.  Needless to say it has been ugly and stressful.  The company is not large but a consistent $3-$5M in annual sales(mostly government funded contracts).

I finally found a potential investor interested in purchasing my membership interest for $150k(a substantially low price) but I just want to get out and move on with my life.  The current GM of the Company(and 20% member) wanted to meet the potential investor prior to a shop tour(they wanted to see what the assets for themselves).  There are 3 other owners distribution is   (GM @ 20%, Accountant @ 10%, and Engineer @ 34%).  

His opening statement at the meeting was to tell them that they are welcome to do their due diligence but that they would only be "passive" investors in the company and would have no say in the business.  Well, I don't really have to say it but that pretty much killed the deal.  I believed this relationship would have been a win-win since these investors would have brought potential business to the company and the company could have used the investor's installation business to their benefit(same marketplace).  Instead this was DOA.  Needless to say this GMgr is a multi-millionaire and I am not.  My current counsel advises  that I could go to litigation however the GMgr has a reputation of bleeding people out in the courts.  He has staying power and I'm just an average Joe.  

:  Can he legally just tell a potential investor that they would only be passive?  Doesn't 36% ownership in a corporation have any rights?  Each interaction whether I ask for financials, tax information, whatever he just tells me "no".  I can't seem to get any information as to the financial stability of the company but yet I am on the hook for 36% of the debt they are running up.

It seems at every turn this guy has an angle and is basically trying to work me down to give the stock back for free.  It is a very helpless and hopeless feeling.  I started this business in my basement and in 5 years turned it into a $5-8M in sales with at one point 18 people on the payroll.  The remaining owners are greedy, dishonest people who really don't care about the clients or their interests.  There are also other fraud related issues with these guys but I really don't feel that I have any recourse or options unless I spend money to sue them.  How do I fight "City Hall" so to speak?  Honestly, I am to the point I would give the darn stock away, I just want to get out and get me life back but it just doesn't seem like I can.  $150,000 is not a lot of money to most, especially not the rich partner, but to me and my family that would have been enough to pay the mortgage off.  It just doesn't seem fair.
Crayton
 
Posts: 31
Joined: Sat Mar 29, 2014 11:14 am

Private Stock Sale And Shareholder Rights

Postby Keitaro » Mon Dec 05, 2016 11:28 am

There seems to be several questions in one. First as this is a complicated situation which is subject to any agreements, articles of incorporation, bylaws etc of the corporation one would need to review such documents in order to advise you as to what if any rights you would have in your position as a minority shareholder. In general, barring an agreement otherwise, your rights are very limited as a minority shareholder in a private company mostly limited to review of records, equal distributions, etc. In general it is not easy to convert your minority ownership stake to cash due to the very issues you raised.

However, based on what you wrote it would appear you may want to consider a whistleblower claim under the false claims act in an action qui tam. If the company was involved in some sort of fraudulent activities as you say and if the fraudulent activities involve the sale to the gov't, as you indicate that the company had govt funded contracts - you can file a claim on behalf of the govt seeking reimbursement of the funds that the govt was defrauded - and the govt may intervene to take over the case once filed - if successful the person who files receives a  of the funds recovered for the gov't ranging from 15 -25. However, typically such claims are filed by employees/outside vendors etc, rather than founders/owners, as one must obviously carefully consider in such position whether they may be implicated in such fraud. If you wish to follow up please feel free to call or email me through my web site http://www.smeissner.com/contact.html and we can look into whether such whistleblower claim is feasible.
Keitaro
 
Posts: 43
Joined: Tue Apr 08, 2014 10:00 pm

Private Stock Sale And Shareholder Rights

Postby Lairgnen » Sun Dec 11, 2016 12:47 am

First, I own 36% of an LLC in NYS.  I resigned as a manager in March due to health concerns, ethics, conflict with partners.  I also believe I uncovered fraudlent activities on the parts of 2 of the other 3 business partners.  Needless to say it has been ugly and stressful.  The company is not large but a consistent $3-$5M in annual sales(mostly government funded contracts).

I finally found a potential investor interested in purchasing my membership interest for $150k(a substantially low price) but I just want to get out and move on with my life.  The current GM of the Company(and 20% member) wanted to meet the potential investor prior to a shop tour(they wanted to see what the assets for themselves).  There are 3 other owners distribution is   (GM @ 20%, Accountant @ 10%, and Engineer @ 34%).  

His opening statement at the meeting was to tell them that they are welcome to do their due diligence but that they would only be "passive" investors in the company and would have no say in the business.  Well, I don't really have to say it but that pretty much killed the deal.  I believed this relationship would have been a win-win since these investors would have brought potential business to the company and the company could have used the investor's installation business to their benefit(same marketplace).  Instead this was DOA.  Needless to say this GMgr is a multi-millionaire and I am not.  My current counsel advises  that I could go to litigation however the GMgr has a reputation of bleeding people out in the courts.  He has staying power and I'm just an average Joe.  

:  Can he legally just tell a potential investor that they would only be passive?  Doesn't 36% ownership in a corporation have any rights?  Each interaction whether I ask for financials, tax information, whatever he just tells me "no".  I can't seem to get any information as to the financial stability of the company but yet I am on the hook for 36% of the debt they are running up.

It seems at every turn this guy has an angle and is basically trying to work me down to give the stock back for free.  It is a very helpless and hopeless feeling.  I started this business in my basement and in 5 years turned it into a $5-8M in sales with at one point 18 people on the payroll.  The remaining owners are greedy, dishonest people who really don't care about the clients or their interests.  There are also other fraud related issues with these guys but I really don't feel that I have any recourse or options unless I spend money to sue them.  How do I fight "City Hall" so to speak?  Honestly, I am to the point I would give the darn stock away, I just want to get out and get me life back but it just doesn't seem like I can.  $150,000 is not a lot of money to most, especially not the rich partner, but to me and my family that would have been enough to pay the mortgage off.  It just doesn't seem fair.
Lairgnen
 
Posts: 36
Joined: Fri Mar 28, 2014 2:52 pm


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