Business law: it’s just personal

Close up of businessman placing wooden block on jenga tower

We’ve all heard the phrase “It’s nothing personal, it’s just business”. But what about when it is personal? For example, what if after 23 years of holding stock in a company, you’re told that you are not entitled to any of your shares? Let’s look a little closer.

A potential client recently came forward with an interesting situation. 23 years ago, he and a business partner started a real estate company and received shares (50% of total issued) in the private company. Three years after the company started, this man stopped all association with the company and partner, but kept his stock. Now 20 years later, he wants to sell his stock. The company, however, which happens to be the only other share holder, claims this man verbally gave up his shares when he disassociated himself with the company those 20 years ago. With the original certificate of ownership in his arsenal, and no signature of his waiving his right to his shares, this potential client wonders what he should do in order for his stock ownership to be recognized.

If this man was sitting in our office, the first thing I’d ask is how much these shares are worth. With the passage of 20 years and no written records to support either side, fighting over this in court has the potential to be very expensive and very risky. On the other hand, having the original certificate puts the burden of disproving share rights on the opposing party. Furthermore, if he does own half the shares, anything the “partner” might have done since the man disassociated himself to deprive him of his interest would probably be void. You need a majority of shares to elect directors, and a majority of directors to make management decisions, and the “partner” didn’t have a majority.

The smartest thing for this man to do is to consult with a lawyer and start making waves. But one should always bear in mind that if there’s nothing to get at the end, there’s no use in throwing away money getting there.

For more information on business law, please visit our website: http://stanprowse.com/steps-to-forming-a-corporation

 

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