Selling Your Minority Interest: Owner / Employee

Selling a minority interest in a privately held business in California must be handled thoughtfully. First, if you are able to sell a minoroty interest in a privately held business for a profit (whether small or substantial) you are already on a good path. This article address some consideration for an individual minority owner who is also an employee.

The good news is that you are getting paid for your hard work and getting a return on your investment. These are the rewards that capitalism provides. The bad news is that your Company may try to limit your ability to own and operate a similar business for a period of years or within a specific geographic region through a non-compete agreement.

You may say, "Wait, I read http://alglaborlaw.blogspot.com/2008/08/non-competition-clauses-in-california.html, which says non-compete agreements are void in California." They are ....for pure employees. However, there are narrow exceptions under 16601, 16602 and 16602.5 which provide that a seller of "substantially all" of his/her/its assets, goodwill or interest in a business "may agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein."

Here, there are elements of both the employee relationship and the owner relationship. Despite being an "owner" many "owner-employees" are not financially independent such that they can afford to not work for an extended period of time, even with a substantial payout from the sale of their shares -- taxes, mortgages, school tuition and debt incurred during the formation and growth of the business all add up quickly. Therefore, the owner-employee must tread carefully so as to not restrict his or her future ability to earn a living or maintain his or her lifestyle when agreeing to sell his or her shares.

On the one hand the owner-employee is often not required to agree to any and every restriction, on the other hand the employer is often not required to repurchase the shares. The "may" language will naturally result in a negotiation of the future restrictions on the activity of the owner-employee, which will often become a material business point affecting the pruchase price paid for to the owner-employee for the shares or whether the sale will even be consummated at all.

Adishian Law Group, P.C. assists owners of privately held companies in the negotiation and sale of their shares or membership interests to maximize the value of their ownership interest while allowing them reasonable freedom to pursue their next entrepreneurial dream or investment. If you are contemplating the sale of your interest in a corporation, limited liability company or partnership, we recommend that you consult and attorney before concluding the purchase and sale agreements.

Note: The information contained is not legal advice and does not establish an attorney-client relationship. Our contact information is included and we always offer a free consultation. For more information about SELLING THE COMPANY, SELLING SHARES, SELLING MEMBERSHIP INTERESTS, SELLING PARTNERSHIP INTERESTS, LIMITED LIABILITY COMPANIES, CORPORATE LAW and other areas of law, please visit http://www.AdishianLaw.com, contact us via email to askalg@adishianlaw.com or call us at 415.955.0888 or 310.726.0888. Copyright Adishian Law Group, P.C. 2011.

Selling Your Minority Interest: Owner-only

Selling a minority interest in a privately held business in California must be handled thoughtfully. First, if you are able to sell a minority interest in a privately held business for a profit (whether small or substantial) you are already on a good path. This article address some consideration for an individual minority owner only (e.g. not an owner-employee).

The good news is that you are getting paid for your hard work and getting a return on your investment. These are the rewards that capitalism provides. The bad news is that your Company may try to limit your ability to own and operate a similar business for a period of years or within a specific geographic region through a non-compete agreement.

You may say, "Wait, I read http://alglaborlaw.blogspot.com/2008/08/non-competition-clauses-in-california.html, which says non-compete agreements are void in California." They are ....for employees.

However, there are narrow exceptions under 16601, 16602 and 16602.5 which provide that a seller of "substantially all" of his/her/its assets, goodwill or interest in a business "may agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein."

Due to the "may" language this will naturally result in a negotiation of the future restrictions on the activity of the seller, which will often become a material business point affecting the pruchase price paid for the Seller's shares or whether the sale will even be consummated.

Adishian Law Group, P.C. assists owners of privately held companies in the negotiation and sale of their shares or membership interests to maximize the value of their ownership interest while allowing them reasonable freedom to pursue their next entrepreneurial dream or investment. If you are contemplating the sale of your interest in a corporation, limited liability company or partnership, we recommend that you consult and attorney before concluding the purchase and sale agreements.

Note: The information contained is not legal advice and does not establish an attorney-client relationship. Our contact information is included and we always offer a free consultation. For more information about SELLING THE COMPANY, SELLING SHARES, SELLING MEMBERSHIP INTERESTS, SELLING PARTNERSHIP INTERESTS, LIMITED LIABILITY COMPANIES, CORPORATE LAW and other areas of law, please visit http://www.AdishianLaw.com, contact us via email to askalg@adishianlaw.com or call us at 415.955.0888 or 310.726.0888. Copyright Adishian Law Group, P.C. 2011.

Minority Shareholders in Privately Held Companies

The concept of ownership is deeply woven into the American Dream -- e.g. own a home, own public stock, own bonds, own a business -- so deeply woven in fact that sometimes "ownership" becomes the goal regardless of the consequences attendant to that "ownership." Yes, when done properly, with due attention to the risks, rewards and ROI (return on investment), ownership can create equity expansion and increase net worth like few other opportunities in our economy.

However, poorly thought out investments in privately held Companies can lead to "dead money", where the only "return" is pride of ownership and you cannot get your money out. That is, you get to tell your friends and family that you are an "owner of this Company" but in fact you see no financial benefit to this ownership at all! Even worse, such investments can result in a complete loss of the capital invested. Either way, the money is effectively gone, and you are unable to use it in another productive investment. Bad result.

Some points to consider before investing in a privately held company:

Will I ever see a return on my investment?

How will I see that return? (Dividends, interest, appreciation?)

How likely is it that I will actually see that return?

Will I ever get my original investment back?

Can I sell my stock to somebody if I want/need my money (or some of it) back?

At what price can I sell my stock?

How long will that take?

There are many other issues to consider as well.

Adishian Law Group, P.C. assists investors in privately held companies in maximizing the value of their ownership interest and minimizing the risk of capital loss or "dead money." We assist with the "capital allocation decisions" for both majority and minority shareholder positions, as well as subsequent ongoing management of these investments. If you are contemplating an investment in a privately held company, or you are already a minority investor, we would be happy to talk with you about your options for increasing the value of your shares.

Note: The information contained is not legal advice and does not establish an attorney-client relationship. Our contact information is included and we always offer a free consultation. For more information about the MINORITY SHAREHOLDERS, CAPITAL ALLOCATION, INVESTMENTS, CORPORATE LAW and/or other areas of CORPORATE law, please visit http://www.AdishianLaw.com/, contact us via email to askalg@adishianlaw.com or call us at 415.955.0888 or 310.726.0888. Copyright Adishian Law Group, P.C. 2011.

Adishian Law Group Newsletter (Summer 2010)

(Edited, Originally published Summer 2010)

Headnotes

Class Action. We are representing a putative class of plaintiffs in an action against Greystone Bank and Greystone Service Corporation, Inc. alleging violation of California Civil Code 2924c, Breach of Contract, Unfair Competition (BPC 17200) and other claims. Per its website, Greystone Service Corporation "services ... a multi-billion-dollar portfolio of real estate loans for Fannie Mae, GNMA, private investors, public agencies, and our own portfolios." If you have a loan originated by Greystone Bank or your loan is serviced by Greystone Servicing Corporation, and you have been charged excessive interest, late fees, attorneys' fees, appraisal fees or reinstatement fees, please contact us at info@adishianlaw.com.

Arbitration and Mediation Services.
Chris Adishian is available to serve as an arbitrator or mediator in corporate, business or real estate disputes. Recent arbitrations and mediations include the following:

• Served as one of three arbitrators appointed to decide a client-attorney fee dispute of approximately $60,000

• Served as one of three arbitrators appointed to decide a client-attorney fee dispute of approximately $750,000

• Served as one of three arbitrators appointed to decide a client-attorney fee dispute of approximately $900,000

If you would like to have Chris Adishian serve as a private Mediator or Arbitrator in your dispute, please contact the office at 310.726.0888 to check for availability of dates.

New Restaurant: 33 Degrees Comes to Long Beach.
Friend of the firm, Ed Shaffer, has just opened up a new restaurant named 33° Degrees. Per the website, "33° Degrees is a nautical themed gastropub that will serve a healthier and creative menu inspired by cuisine along the 33rd Latitudes. Come join us for handcrafted drinks, live music and televised sports while enjoying the harbor views." It is located at 423A Shoreline Village Drive, Long Beach, CA, 90802. Website: http://33degreeslb.com/

Ed has worked very hard to get the restaurant opened, so if you are in the Long Beach area give it a try, and when you are heading over, email Ed directly at ewshaffer@gmail.com.

Something fun: Visit The Jurassic Gardens, Take Home a Prehistoric Plant.
Want to add something unique and fun to the homestead? Visit Jurassic Gardens in Hollywood operated by friend of the firm, Maurice Levin. http://www.facebook.com/pages/North-Hollywood-CA/Jurassic-Garden-AA-Cycads/52752691482 or http://cycadpalm.com/index.html.

Please consider making a Red Cross donation to Haiti. Red Cross Haiti Donation Page.

Corporate Law Update

We continue to build our corporate practice of representing top entrepreneurs and serving as general counsel for emerging companies and privately-held corporations across a range of industries from high-tech to low-tech. Target clients include start-ups and privately held, growth companies with $10M+ in revenue. Some of our recent and active corporate matters include:

• Ongoing, broad-based, general counsel work for privately held companies
• Advising foreign-based manufacturer on contract drafting for its California sales and transactions
• Representing a corporate client in post-acquisition dispute from initial dispute through resolution via mediation
• Management services agreement -- health care industry
• Business sale advisory
• LLC formations for real estate development, financial consulting and
business start-ups

For an updated list of representative projects and transactions, please visit our Corporate Transactions Page.

In addition, we also provide a free corporate resources page, located here ALG, P.C. Corporate Resource Links.

Our flat rate corporate or LLC formation package is a great value for start-ups. If you or your clients have an idea, and are ready to run with it, please contact us at askalg@adishianlaw.com to schedule a free, no obligation consultation.

Executive-Level Wrongful Termination Law Update

Representing talented, highly compensated corporate professionals (e.g. "C-Suite" executives, Company Founders, Investment Bankers, Sales Managers, and Sales Representatives) throughout California continues to be a core piece of our practice. Many of our clients are leading performers in their chosen professions. We represent top corporate talent in high-stakes litigation against some of the largest corporations and law firms in the country. We also regularly advise senior level executives in negotiating their employment agreements.

Since early May (roughly the last 60 days) we have resolved 4 employment matters. In 3 cases, we represented the employee and in 1 case we represented the Company. One case required about 1 year of litigation, and the others were resolved pre-litigation. Of course, the facts of each case are different and there is no guarantee of any particular outcome in any one case. Some of our current and past representative employment matters:

• Represented a highly compensated sales representative in a large six-figure bonus / commission dispute
• Represented co-founder, minority shareholder of a successful private company with respect to employment and corporate claims against the company and majority shareholder [Contra Costa County, MSC09-01153]
• Represented a female, former sales rep for large wholesaler alleging sexual harassment and gender discrimination, based on a hostile work environment including sexually explicit emails and photos emailed to her by males
• Co-counsel at trial resulting in Statement of Decision finding for Plaintiff against division of U.S. Bank [Orange County, 30-2008-00105190]
• Represented a foreign national on pending separation from Company

Labor Market Review: This week Goldman Sachs forecasted that nationwide unemployment, currently at approximately 9.5% will rise to approximately 10 3/4% for most of 2011, suggesting perhaps that the stimulus seems to have flowed through the system without accelerating any recovery. In California, the latest EDD report states that California's statewide unemployment "decreased" to 12.3%, which is still higher than the U.S. average and not much different that the 12.5% in January, which was one of the highest numbers since the data has been tracked.

If you have been wrongfully terminated, you must do everything you can do to protect your economic well-being as the job market remains at historically bad levels even for those with excellent education, experience and proven abilities.

For an updated list of representative client matters, please visit Employment Results.

If you have lost your job, regardless of your employment level, you clearly are not alone. We encourage you to visit our Labor Law Blog to learn what steps we recommend that you take if you have been fired or laid off. The tough news is that no quick substantive exit from the recession is apparent, but the good news is that there are definitely steps that you can take to help you get through this difficult economic environment.

We also recommend our own Labor and Employment resources page, located here Employment Law Resources.

If you or someone you know could benefit from our services, or has a fact pattern similar to the above, please contact us at askalg@adishianlaw.com for a free consultation.

Real Estate Law Update

We have a full service real estate practice, representing investors, owner-operators, buyers, sellers and developers in real estate transactions, operations and financings, as well as representing clients involved in real estate disputes in a variety of forums including mediation, arbitration and civil litigation. Some of our recent and active real estate matters include:

• Representing putative class against lender and servicer demanding fees, penalties and interest in apparent violation of California law
• Acquisition of commercial land via a complex multi-party transaction, including a Sec. 1031 exchange, Seller carryback financing and subordinations
• Drafting and advising client with respect to long term commercial lease
• Represented residential tenant being evicted allegedly in violation of Cal. Civil Code 1162 and 1946.1
• Advisory on residential purchase
• Commercial lease negotiations
• Condo HOA compliance
• Residential landlord-tenant advisory

Residential Real Estate Market Review: The residential income market is rebounding with steady tenant demand in certain areas driven by a variety of factors including (a) widespread foreclosures moving people out of homes and into the rental market; (b) demand for better school districts for those tenants raising families.

We remain in the down part of the real estate cycle, which is the better time to invest for the long term, and there are attractive opportunities in larger apartment complexes. These opportunities often make sense for small groups (1-6) of investors with a long term horizon. If you are considering a long term investment in real estate, we strongly encourage you to contact an attorney and your CPA before committing capital.

Commercial Real Estate Market Review: The commercial market remains challenging for landlords of office and strip malls. Landlords holding lower quality locations with non-branded, non-chain tenants are suffering prolonged vacancies due to few new business starts and excess supply on the market.

For an updated list of representative projects and transactions, please visit our Real Estate Results Page.

We also recommend that you visit our own real estate resources page, located here Real Estate Resources Links.

When you have your next real estate issue, whether it is a L-T issue, Broker-client dispute, pending litigation, mediation, arbitration, a new development, upcoming transaction, need capital or simply want to sell an asset, contact us via askalg@adishianlaw.com for a free, no obligation consultation.

The ALG, P.C. Difference

Our practice grows through relationships and referrals. Our points of differentiation are:

1. Professional Service. We are professionals, striving always to deliver the highest level of client service in a trusted, effective manner;
2. Representing Leaders. Our clients are exceptional individuals, families and companies who are achievers in their chosen fields and value our services;
3. Trusted, Proven Network. We also serve as "network hub", providing our clients with a single point of contact for all of their legal needs relating to the great state of California. In terms of scale, LinkedIn calculates that our 2nd level network is over 85,300 individuals, and that our 3rd level network is over 5,011,900 individuals. Every client has access to, and benefits from, our trusted, proven network of talented professionals and other firm resources.
4. Technology Forward. We are technology-forward, leveraging the latest technology to deliver our legal services in the most efficient manner;
5. Direct Attorney Involvement. We provide direct attorney involvement on every client matter, supplemented as appropriate by staff;
6. Personalized, 24 hour access. We provide highly personalized, responsive service to our clients -- clients have twenty-four hour access to our attorneys and staff;
7. International and Cross-Border Experience. We are international, advising overseas clients on inbound activities and advising California clients on outbound activities in foreign jurisdictions; and
8. Solutions Focused. We generate creative solutions founded on our practical knowledge of what works and what does not work.

In short, we act quickly, and when you need us, we are on the ground with you....wherever you may need us. Simply pick up the phone.

Related Services

• Attorney Referrals. We continue to add quality attorneys to our referral network, so even if your legal needs fall outside within our core practice areas, your first call should still be to ALG. If we cannot help you directly, chances are we have a relationship with a high-quality attorney or law firms in that area of law.
• Real Estate Brokerage: Property Management Services. Adishian Capital offers full service property management for properties in Los Angeles County.
• Professional Introductions
• Company/Individual background checks
• Asset verification/debt collection
• Conference room access in Los Angeles and San Francisco

Thank you for your ongoing support, and Go Bears!

Regards,

ADISHIAN LAW GROUP, P.C.
Southern California
Pacific Corporate Towers
222 N. Sepulveda Blvd., Suite 2000
El Segundo, California 90245
P: 310.726.0888
F: 866.350.0888

Northern California
One Market
Spear Tower, Suite 3600
San Francisco, California 94105
P: 415.955.0888
F: 866.350.0888
Web: http://www.AdishianLaw.com
Skype: ALG-PC

Oppressive Conduct by Majority Shareholders

California Corporation Code § 1800 provides several grounds for involuntary dissolution. A court may grant involuntary dissolution where (1) “[t]hose in control of the corporation have been guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness toward any shareholders or its property is being misapplied or wasted by its directors or officers.” §1800(b(4), and (2) “liquidation is reasonably necessary for the protection of the rights or interests of the complaining shareholder or shareholders.” §1800(b(5). See also Bauer v. Bauer, 46 Cal.App.4th 1113, 54 Cal.Rptr.2d 377, Stuparich v. Harbor Furniture Mfg., Inc. 83 Cal.App.4th 1268, 100 Cal.Rptr.2d 313, 2000 Daily Journal D.A.R. 10,657.

Involuntary corporate dissolution under subdivision (b)(4) requires a showing that those in control of the corporation have been guilty of, or have knowingly countenanced, “persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness toward any shareholders,” or that the corporation's property “is being misapplied or wasted by its directors or officers.”

Bauer described the course of conduct that satisfies the definition of the improper “squeezing out” of a minority shareholder, thus entitling a minority shareholder to dissolution of the corporation to protect his or her interests. The court took its definition of a from Marsh’s California Corporation Law, the portion quoted by the Bauer court is below:

“The term ‘squeeze-out’ is . . . generally intended to describe a situation where the majority controlling shareholders, who are also the principal officers of a corporation, engage in a course of conduct which is designed to exclude a minority shareholder or shareholders both from participation in the conduct of the corporate business and from the economic benefits derived therefrom . . . The conduct most typically takes the form of refusing to pay any dividends on the corporate stock, refusing to permit the minority shareholder to have any corporate office or position on the board of directors . . . , and the payment of large salaries to the controlling shareholders who are the principal officers of the corporation . . . Obviously it makes a great deal of difference whether dividends had once been paid on a regular basis, but were stopped; whether the minority shareholder had a job with the corporation from which he was fired; and whether the controlling majority shareholders increased their own officers’ salaries, after the rift appeared and the dividends were terminated.” 2 Marsh’s California Corporation Law (3d ed. 1995) §11.46, 958-960

Adishian Law Group, P.C. represents and advises entrepreneurs, company co-founders, and C-Suite executives on a wide range of legal and strategic issues, including maximizing the value of their ownership interest.

Note: The information contained is not legal advice and does not establish an attorney-client relationship. Our contact information is included and we always offer a free consultation. For more information about the MINORITY SHAREHOLDERS, OPPRESSIVE CONDUCT, CORPORATE LAW and/or other areas of CORPORATE law, please visit http://www.AdishianLaw.com/, contact us via email to askalg@adishianlaw.com or call us at 415.955.0888 or 310.726.0888. Copyright Adishian Law Group, P.C. 2009.