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jegerhei
04-28-2014, 02:09 PM
Hello, My husband entered into an employment agreement in 2003 where he would receive 10% of common stock from the owner/company after 6 years of service. The 6 years have come and gone almost 5 years past now. We are having a difficult time as the owner of 90% of the company makes every and all decision with no discussion. He tends to be frivolous with finances and spending habits. When the topic is brought up to him his response is he does not need to discuss anything with my husband as he is president and owns 90% and my husband is vice president and only owns 10%. He continually states he is the boss. Our issue is his spending habits is decreasing the value of the stock in turn our value of our stock.

Some say to us just sell and get out but in the contract he signed in 2003 it has a 1 year notification period if he was to leave the company for any reason plus a 2 year non compete after that period. This is our livelihood and we would not be able to make a living.

What do we do? Do we have any leg to stand on to be able to be heard on financial decisions? The contract does not list after the first 6 years anything about roles of the individual owners.

Thank you for any and all advice.

Fulcrum
04-28-2014, 05:21 PM
You need to go back to the contract. Usually, a minority owner has no say in the general day to day operations. If the contracts give your husband the right to veto, than you need to find the clause and point it out.

As for the "I'm the boss" as well as "I'm the president and your just a VP" statements, your husband needs to stand his ground and state that he is a partner in addition to being an employee. He is looking out not only for your own interests but those of the majority owner as well.

The flip side is also true. It could be that the majority owner is trying to get your husband to leave so he can buy back the 10% at a possible reduced price. This is just an assumption, but it is a scenario that cannot be completely ignored.

I hope this helps a bit. As well, you would be best served by seeing a good lawyer and/or accountant for advice as well.

Freelancier
04-28-2014, 05:33 PM
I see two separate issues:

1. You have stock whose value likely will not be fully realized under current management. You need to go back to your documentation on this stock to see what you can do to sell the stock. Usually closely held companies restrict stock sales, but you have to see what your possibilities are and the contracts signed when you were granted the stock should indicate how you can dispose of the stock legally.

2. You have an employment situation where the "big dog" isn't going to give up any power. Your husband has to decide at what point he's fed up and wants a different job. If he does, how does that affect his stock ownership?

You need to go back to the contract and get an attorney to advise you on what your options are going to be.

jegerhei
04-28-2014, 07:15 PM
Thank you both so much for feedback. A few years back we consulted an attorney on the matter. At this point several years later the stock and contract just hang there. We have not signed anything after the 6 years were complete to acquire the stock as so many grey areas. The contract states nothing about selling the stock back. He is "fed up" but contract states either party has to give 1 year notification of terminating the employment contract and then he has a 2 year non compete. This is a landscaping business and we live less than a 1/4 mile away so unless we sell and move it is not feasible to agree with non compete. This plus the financial statements show a share holders equity at negative 135K the next line states total liabilities and stockholder equity at positive 44K not sure how the negative went to a positive but value of company can not be a lot.

Freelancier
04-28-2014, 09:22 PM
There's no such thing as a one year notification that you will leave a job. Slavery ended in the 1860's. There's no court on the planet that would allow that clause to survive, so don't worry about that. 2 years non-compete is a little high, check with a LOCAL employment attorney about that, because it usually also has to be limited by specific industry or specific list of competitors, but your local case law will govern that.

As for the specifics on the value of the company, you could force the issue to find out, because the minute you accept the stock, you've accepted a tax liability for the value of the stock, so it's a double-edged sword. Take the stock, come up with the cash to pay the taxes.

Paul
04-28-2014, 11:17 PM
Hello, My husband entered into an employment agreement in 2003 where he would receive 10% of common stock from the owner/company after 6 years of service. The 6 years have come and gone almost 5 years past now. We are having a difficult time as the owner of 90% of the company makes every and all decision with no discussion. He tends to be frivolous with finances and spending habits. When the topic is brought up to him his response is he does not need to discuss anything with my husband as he is president and owns 90% and my husband is vice president and only owns 10%. He continually states he is the boss. Our issue is his spending habits is decreasing the value of the stock in turn our value of our stock.

Some say to us just sell and get out but in the contract he signed in 2003 it has a 1 year notification period if he was to leave the company for any reason plus a 2 year non compete after that period. This is our livelihood and we would not be able to make a living.

What do we do? Do we have any leg to stand on to be able to be heard on financial decisions? The contract does not list after the first 6 years anything about roles of the individual owners.

Thank you for any and all advice.

There is no decision making authority with 10% ownership of common stock alone. The stock is valueless unless the company has a significant market value and even then it has no value unless someone is willing to buy it from you. If he distributes profits to shareholders then you should be reciving 10% but I guess he makes sure the company doesn't have a profit. Someday if he wants to sell the company you may have some value. In the mean time forget about the stock and concentrate on the other issues. As was said already the 1 year notification is meanngless unless it calls for forfeiting the stock, which is worthless anyway. A non compete that prohibits you working in the industry may be considered onerous and/or coerced and non enforcable. There are other ways to get around non competes. A lawyer can answer this better but if the non compete was not written correctly it may not be enforcable anyway,or have any meaningful remedy or penalty.

Freelancier
04-29-2014, 07:56 AM
The stock is valueless unless the company has a significant market value and even then it has no value unless someone is willing to buy it from you.

This is incorrect, the stock has a value of 10% of the total value of the company and the IRS will immediately tax you on the stock gift when you receive it based on the value assigned by a reputable accounting firm (who may have to defend their valuation if the IRS questions it).

The stock is likely illiquid, as in you can't easily convert it to cash. So... you have cash going out to pay taxes and no cash coming in from the stock, which is rarely a good situation to be in.

Paul
04-29-2014, 10:12 AM
This is incorrect, the stock has a value of 10% of the total value of the company and the IRS will immediately tax you on the stock gift when you receive it based on the value assigned by a reputable accounting firm (who may have to defend their valuation if the IRS questions it).

The stock is likely illiquid, as in you can't easily convert it to cash. So... you have cash going out to pay taxes and no cash coming in from the stock, which is rarely a good situation to be in.

Not true if the stock is issued when the company had no value, or as founders stock. You are not taxed as the value appreciates, only when the stock is eventually liquidated. If it did have a value when issued then the tax consequence was then, not now. It sounds like the company doesn't have much value now.

But, the questions weren't about tax consequences. The questions were about minority shareholder rights and seperation and non compete agreements.