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Investing in a corporate entity is fairly standard practice in our society. Problems arise when you own a small percentage of shares, but disagree with the direction the majority shareholders are taking the entity. As a minority shareholder, do you have any way to fight “the man”, to wit, the majority shareholders?

Minority Shareholders

A couple of your friends come up with a great business idea, but need start-up capital. You agree to provide $10,000 for 30 percent of the shares. A corporation is formed, but the friends take the business in a direction you don’t like. What can you do?

The first step for a minority shareholder is to look at the bylaws of the corporation. If careful planning was taken when forming an entity, there should be clauses that detail your rights to object. If the corporation was formed through one of those $99 online sites, wellI wouldn’t hold out much hope. Heck, the entity may not even have bylaws!

If no relief can be found in the bylaws, a minority shareholder may be saved from themselves by their state. In every state, you will find legal codes laying out the rights of a “dissenting” shareholder. The laws are typically found in the “corporate” or “civil” codes, depending upon the state. Simply go to your local law library and ask a librarian for help.

Each state’s dissenter laws are going to be slightly different. Despite these differences, you should be able to find provisions that give a minority shareholder the right to throw a fiterr, seek justice. Generally, the dissenter rights are going to include some mechanism whereby you can force the corporation to buy back your shares.

While a “buy back” may sound great, it almost always lead to litigation between the majority and minority shareholders. The litigation typically focuses on a nasty argument over the value of the shares.

You, of course, are of the opinion the shares have increased in value. Your former friend have an opposite view. Since it is unlikely the stock is traded publicly, a valuation brawl ensues whereby appraisers are brought in, attorneys argue and judges roll their eyes in exasperation. In the end, you are awarded $15,000, pay your attorney $20,000 and lose two friends.

In Closing

If you are a minority shareholder, make sure there is some provision in the bylaws to protect you. If you don’t, you could be in for a very rough ride.

Richard Chapo is with http://www.sandiegobusinesslawfirm.com - providing legal services to San Diego businesses.

A majority of businesses have ownership groups of less than
five individuals. While this provides for efficient and
effective management, difficulties arise when something
happens to one of the owners.

If your business has multiple owners, ask yourself what
happens if:

A business name can be a huge factor in the ultimate success or failure of the entity. Unfortunately, many people fail to give a lot of thought to it prior to moving forward. There are many factors to consider including something memorable, a name related to your area of work and, potentially, the availability of the domain name.

Married?

Picking a business name is like getting married. You are going to have to stick with it till the bitter end. It is estimated a prospect will need to see your advertisement and business name at least 22 times prior to doing business with you. Once they associate your business with a certain name, making a change will be disastrous. Once you pick something, stick with it.

Naming Your Business

If you are going to be married to your business name, you need to make sure the bride isn’t already married to another suitor. There are four significant issues to consider.

Initially, you must determine whether the name is already being used in your state. The Secretary of State controls the names of all corporations, LLCs and partnerships. Most also have a web site where you can conduct name searches. Even if you are a sole proprietor, you should check the name against those already registered in the state database. If the name is being used, you will need to consider an alternative.

Assuming the name passed must with the Secretary of State, you should check it against existing trademarks file with the Patent and Trademark Office. The “PTO” maintains an online database. As with the Secretary of State, you can conduct an online search to make sure no other business is using it.

In this day and age, many businesses incorporate a web site as part of their business model. If you are in this boat, you need to check to see if the business name is available as a domain. If it is, you should register it immediately. If not, you can either change your business name again or focus on a domain name incorporating your service or product instead of the business name.

Avoiding Problems

You business could be devastated if you do not take these precautionary steps. Imagine the negative impact on your business if the name has to be changed three years down the line. Take a breath before you select a business name. Like a spouse, it can be either a good or bad choice.

Richard Chapo, Esq., is a business lawyer with http://www.sandiegobusinesslawfirm.com - offering legal advice to San Diego businesses. This article is for general education purposes and does not address every facet of the subject matter. Nothing in this article creates an attorney-client relationship.