Questions

Minority Shareholder in a startup, leaving the day-to-day operations, what are my rights?

I own a small steak in a startup (~15%) and am leaving the day-to-day running of the company. The majority steak-holder (~70%) is claiming that they have invested more time and resources (debt) and wants to convert it to equity and dilute everyone out. What is my right as a minority steak-holder? Do I have any say? Can they just take what is mine without regard or burden of proof?

2answers

The answer to your question depends on a number of things: what type of entity the company is, what state it is organized in, and most importantly, what the organizational documents say. Generally, it is the fiduciary duty of the Board (if it is a corporation), and in some cases (e.g. Delaware) the majority stockholders, to act int he best interest of ALL shareholders, including minority shareholders, in making decisions for the company, including those that involve significant dilution. And, in some states, there are statutes that require the vote of minority shareholders for some types of actions. However, the organizational documents of the company can often override these protections. So, it would be impossible to give you a reliable picture of your "rights" without that information. I am a startup attorney and would be happy to help you get to the root of your questions, if you would like to provide more info or set up a call.


Answered 4 years ago

The short answer is yes.

The long answer is that it depends on how the business is setup from a legal perspective, bylaws articles of incorporation etc.

You should consultant an attorney to be certain, but as a general rule the majority owners can issues as many shares as they want to whom they wish. Essentially washing out minority holders of equity.


Answered 4 years ago

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