QUESTION
Is it possible to be a shareholder and relinquish rights in order to satisfy the issuing company that the shareholder will not become hostile?
Asked on Sep 21st, 2016 on Corporate Law - California
More details to this question:
Divorce situation, husband is about to have a newco funded by another company and will be issued a large number of shares. The investing company will not fund newco if the wife is to receive shares in the divorce settlement. The investing company does not want a potentially hostile shareholder. Originally wife was told that her shares could go into a trust and that she would not have any shareholder rights to avoid the possibility of disrupting business. Now wife is told that a trust will not work and if the wife is to receive shares in the divorce settlement, the investor will not sign a deal. Is there anyway of securing shares that will satisfy the demands of the investor? To rule out the future possibility that the shareholder may become hostile?
1 ANSWER
How about an agreement with the ex-wife that whatever amount the three founders get for their shares or the IPO price, she gets that same price per share? She gets it at the same time they get it or upon the IPO, whichever comes first. Until then, she agrees to let the three founders vote all her shares and she waives the right to attend shareholders and directors meetings and to inspect the company’s records. She will receive copies of all Board minutes and resolutions, and quarterly and annual financial statements. This agreement could be written up as a stipulation in the divorce case, approved in writing by their attorneys, and submitted to the court for approval as an order in the divorce. If she doesn’t agree to this or something like it, the investor won’t invest, the company will not be able to complete its invention, and she and her ex-husband will be bankrupt and penniless.
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Dana Sack
Answered on Sep 23rd, 2016 at 10:27 AM