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Legal question - Please help - entrepreneurs

Discussion in 'Other Off Topic Forum' started by t3kneak, Jul 11, 2009.

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  1. t3kneak

    t3kneak Karting

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    #1 t3kneak, Jul 11, 2009
    Hi Guys,

    Imagine a corporation who currently has 4 shareholders. Now out of this 3 of them want to give a new person 5% of their current shares, while the 4th shareholder is in disagreement of this decision. Could this still be done? My father, and 2 other shareholders would like to give me 5% of the shares while the 4th shareholder threatens to quit if this happens. This 4th person has also said that he has talked with a CA who has told him that without his agreement this will not happen legally. Is this true? By the way I am in Canada.
     
  2. Dcup

    Dcup F1 Veteran

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    #2 Dcup, Jul 11, 2009
    I believe if it comes to a vote, majority rules.

    You're in Canada ??? You're fuc**d.


    PS. Do all the shareholders have equal shares ????
     
  3. t3kneak

    t3kneak Karting

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    #3 t3kneak, Jul 11, 2009
    Yes, four shareholders, 25% each.
     
  4. ryalex

    ryalex Two Time F1 World Champ
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    #4 ryalex, Jul 11, 2009
    The rules about transferring ownership interests should be in the Articles of Incorporation, which can vary for any business according to what the owners agreed upon. So, go back to your charter documents.

    If there's nothing addressing that issue in the Articles then the law of the province where the business is incorporated will prevail (there are often standard provisions set by the province/state if not agreed to otherwise in the Articles).
     
  5. t3kneak

    t3kneak Karting

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    #5 t3kneak, Jul 11, 2009
    So I need to look at the article of incorporation for that?


    What is the standard here in Canada or the States? I mean it has gotten to the point that one of the shareholders will not agree on adding another shareholder, while the other three do. And the fourth shareholder threatens to resign if such a thing happens. Would there be an option to tell him either he buys us out or we buy him out?
     
  6. ryalex

    ryalex Two Time F1 World Champ
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    #6 ryalex, Jul 11, 2009
    Last edited: Jul 11, 2009
    Yep. The process for transfers and permissions should be outlined there.

    Different in every state. Too broad to answer. Whether or not you can force a buyout should be in the Articles. As a baseline, though, the shares are his property to control. Without a provision to force a buyout, you can't take them any more than you can walk into his house and take his TV.
     
  7. t3kneak

    t3kneak Karting

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    #7 t3kneak, Jul 11, 2009
    Thanks ryalex for the comments.

    Sorry but correct me if I am wrong. His shares will not be affected whatsoever, if he maintains his 25%, while the other 3 shareholders give up 5% each, leaving them at 20% each, and a new shareholder with 15%, how can he have the power to stop this from happening. I thought such a decision would be okay under the law since it will be by majority vote?
     
  8. msquared

    msquared Formula 3
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    #8 msquared, Jul 12, 2009
    if it's an S-CORP, and a foreign national takes ownership of shares, doesn't it immediately become disqualified for pass through taxation and revert to full C-CORP?
     
  9. toggie

    toggie F1 World Champ
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    #9 toggie, Jul 12, 2009
    Another issue could be a cross-purchase agreement, if one exists.

    For example, the disagreeing stockholder may have the right to buy the shares being transferred to you for the same price you are paying for them.

    You also need to look into the tax implications of transferring those shares. If you are paying nothing for them and they have value, that may be a taxable event for you.
     
  10. Simon^2

    Simon^2 F1 World Champ

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    #10 Simon^2, Jul 13, 2009
    since you specified who's on your side... who's against you?
     
  11. Glassman

    Glassman F1 World Champ
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    #11 Glassman, Jul 13, 2009
    Let him quit.
     

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