Legal Question in Business Law in California

Re: Out of Business

Who purchased the shares? If it was the corporation, absent raiding or other misdeeds by the officers, you probably will not be able to collect. Suit may have to be brought against corporation and officers/directors to determine.

Re: Out of Business

Who purchased the shares? If it was the corporation, absent raiding or other misdeeds by the officers, you probably will not be able to collect. Suit may have to be brought against corporation and officers/directors to determine.

Re: Out of Business

First off, I must say you probably have less than a 50-50 chance of getting another payment. People who invest in start-up businesses freuently lose their entire investments, whether by a failed buy-out agreement or more directly. As I see it, your chances rest upon one of three possibilities, each rather unlikely:

(1) Since your stock was apparently sold back to the corporation itself, and not to another stockholder or stockholders, the corporation is your direct obligor; so, your first hope is that the corporation has a sudden reversal of fortune. This occasionally happens.

(2) Possibility #2 is that one or more corporate insiders (directors, officers, other shareholders) might be liable to you for fraudulently inducing you to get into a bad deal, for example by misrepresenting the company's prospects at the time. This would give you a potential lawsuit against the insider for fraud instead of the action for non-payment of the note (a contract cause of action). This is possibly your best bet, but you know the facts. The insider is more likely to have money to respond to a damages award.

(3) A third possibility is that the insiders, although not liable on the basis of misrepresentation, may have wrongfully "looted" the corporation while it was insolvent. Insiders must not pay themselves dividends or distributions, and in some cases not even salaries as corporate employees, if that means leaving non-insider creditors high and dry.

I guess there is also a fourth possibility based on good old "alter ego" theory, "piercing the corporate veil," (which #2 and #3 are not); the protection afforded insiders by the corporate entity can be disregarded and the insiders held personally liable on the corporate debts if the insiders have disregarded the separate nature of the corporation and treated it like a personal piggybank. This seems unlikely here, but I really ought to add it to the list of possibilities.