Legal Question in Business Law in California

You give them shares.

It can be done, but you will want to document everything and if he is gifting it there may be tax implications for him. It would be advisable to consult a business and tax attorney to discuss the details of the transactions and make sure there are no surprises.

As a Franchise Attorney I agree with the other attorneys. The biggest issue if the shares are gifted is the tax consequences to the employees - namely, what is the fair market value of the shares they receive for free? Uncle Sam wants a cut. Consult with a good tax or franchise attorney in your area for specific advice.

Mr. Franchise - Kevin B. Murphy, B.S., M.B.A., J.D.

Franchise Foundations, a Professional Corporation

Employee stock ownership is an old and widely respected concept that sometimes causes great increases in efficiency and competitiveness. Whether there are tax consequences for the employees depends upon the value of the shares each employee receives, and whether it is deemed a gift or part of their compensation package. So long as this is an arm's length transaction and the employees are not the owner's relatives, the tax impacts on the donating shareholder or the corporation should be small. I assume the shares that will be given to the employees will be distributed non-prejudicially and all will come from stock already issued and outstanding, in the hands of the current owner or owners of the corporation.

Again, valuation of the shares and tax advice is important

If the number of employees is relatively large, you should anticipate that some of the employees will soon be wanting to sell, or to buy more. Such trading may be illegal. You may want to contact a securities lawyer to see about either (a) imposing resale restrictions on the shares, so that only employees can buy them (or making them non-sellable), or (b) registering the shares with the state and SEC so they can be traded.

Also, remember that shareholders get to elect directors and directors get to appoint officers, so the current owner will be out of firm control and might get tossed out entirely. Does the owner need a contract with the corporation? Are the employees competent to elect directors and otherwise assume control and run the company? All matters to consider.

Finally, the bylaws may need amendment if the corporation is going from a one-man show to a multi-owner business......for example, it'll need at least three directors when it has three or more shareholders.

An employee can definitely be given shares by way of incentive or gift. The issue, however, that needs to be looked at closely would be the tax consequence to the receiver of the gift � the employee. There are a number of factors to consider in determining the tax implication and it is best left to tax or business attorneys.

We understand your situation and we believe that your case should be given a more thorough evaluation in order to be sure that you get the maximum relief, granted your situation. Accordingly, we would be willing to discuss your case and give you a free consultation to make sure that you are aware of all the important facts surrounding your case, as well as all your legal options to pursue your claim. Feel free to call us at (310) 826-6300. You may also visit our website at www.mesrianilaw.com for our firm�s background information.