Is my stock in this company worth a thing? Company law advice please!

May 7, 2013 7:51 AM

Hi all, I own one third (i.e. approx. 33.3%) of a UK company for which I am also a director. The remainder of the company belongs to a single shareholder. I'm worried that the financial structure of this company means that the company could effectively be 'sold' to a third party without me getting a cent.

The other shareholder holds their 66.6% as 'Class A' shares (this is a nominal designation), whereas my shares are 'Class B' shares. This was set up so that we could both be paid a separate dividend, i.e. because directors would declare different dividends to different classes of shares. My class B shares also have no voting rights.

Now a third party is looking to buy up the entire company and the majority shareholder will probably sell their entire stake. I'm afraid that the third party can take full control over the company and enjoy all its financial rewards without buying up my shares. Essentially, all they have to do is buy the 66.6%, use their majority to vote me out as a director and then only declare dividends for class A shares and never class B shares.

In this scenario my stake in the company, despite being large, is essentially worthless and wouldn't be bought my the third party. But I'm no expert in these things. Please let me know if the situation is as I see, or if I'm wrong (which I hope to be!)

Thanks in advance!

posted by Zen_is_Lev to Work & Money (7 answers total)

There is no reason I can think of that you should not engage a lawyer for this. Full stop.
posted by Etrigan at 7:54 AM on May 7, 2013 [2 favorites]

You need to talk to a solicitor. You will not find any helpful or useful advice on the Internet.
posted by grouse at 7:58 AM on May 7, 2013 [1 favorite]

Absolutely you need to talk to a solicitor. There is a concept called "shareholder oppression," which provides equitable protections for minority shareholders at the hands of majority shareholders. The UK, apparently, recognizes this concept, per Wikipedia. The article linked in the relevant footnote is behind a paywall, but I'm sure you could find other references. This is, again, absolutely, positively, something you need to speak to a solicitor about. I am not your legal advisor, and I am in no way qualified in English law.
posted by Admiral Haddock at 8:08 AM on May 7, 2013

you need to talk to a solicitor, but yes, you can very easily get screwed. Shareholder protection laws may not protect you, as you don't own the same share class as the one being sold. Beyond that though its impossible to say anything without actually reading the docs for the two different classes.

You might be able to compel the acquiring party to make you an offer for your shares, or you might not. It sounds like though he could very easily buy the Class A shares and pay himself out the dividends.
posted by JPD at 8:17 AM on May 7, 2013

I can't speak for the legal implications but from a practical business standpoint most folks aren't going to buy 2/3 of a business just to jump right into a legal morass with the other shareholder. You should raise your concerns with the other shareholder and the potential buyer.
posted by bitdamaged at 8:28 AM on May 7, 2013

Best answer: Treating your facts like the bare hypotheticals that followed the sections in the (US) business planning casebook/treatise I read this semester, my reaction would be that there is no reason that couldn't happen based on only that information. (Obviously, that's not advice. It's agreeing with your logic, outside of the context of any legal system. What you laid out is the verbal equivalent of 2+2=4, but then the law must be applied.)

Of course, there's actual contracts in place, stock in hand, and maybe some correspondence between you and other relevant people? So, you should first take the initiative to collect and organize your documents (including correspondence, etc. Electronic and written).

Then you should, as others have said, engage a solicitor. You can at least get that initial question answered fairly cheaply, based on a review of the documents (thus the efficiency of coming prepared so as not to need to have a series of conversations as you go back for more).

And then decide what to do based on the answer.

You can look at reference materials regarding business planning and venture capital deal structure (materials on the web are like stock implications bootcamp) if you feel like you need explanations of the background concepts to understand the advice you receive. I've had a whole semester of this stuff and I wouldn't dare to give an opinion to a client even on something as apparently straightforward as this without having it reviewed by an experienced attorney first.
posted by snuffleupagus at 10:05 AM on May 7, 2013

Response by poster: Thanks everyone for the good advice. I feel there's a common thread to all the comments (i.e. get a lawyer, and fast!) That's just what I'm doing. Thanks again.
posted by Zen_is_Lev at 3:55 AM on May 9, 2013