Legal Question in Business Law in California

Re: Sarbanes-Oaxley or Rulings for Shareholders of Private Companies

I believe Sarbanes-Oxley applies only to public companies. Further, even if it did apply to privately-held companies, it is rather unlikely that its provisions would contain the best protections against what seems to concern you; namely, that the accounting firm has a conflict of interest with respect to rendering an opinion on the value of your stock for repurchase purposes.

You did not say specifically whether there is a repurchase agreement in effect, nor if so, whether it contains any language specifying how the shares to be repurchased thereunder shall be valued. This information is critical to giving you a very useful response.

Generally, small businesses are not obligated to repurchase shares from a shareholder under any circumstances. When such a duty exists, it usually arises under a contract which, if well drafted, provides a mechanism for valuing the shares and setting a price. (There may be circumstances under which a buyout may be required by a court--probably inapplicable to a voluntary situation such as your husband's seems to be).

As it happens, California has some statutes that bear, generally indirectly, on the pricing of buy-outs, but lots of case law. The problem here is that little of this will be helpful to you if the company is not under an obligation to do this buy-back -- if the deal is voluntary, it can offer as little as it likes.

If, however, there is an agreement that calls for buy-back at appraised value, or soemthing of that sort, and there is a legitimate question as to whose appraisal may be used, I would say there is substantial authority to find a firm with such close ties to the buyer cannot be impartial.

Please contact me with details of the buy-out agreement, if there is one, and I will give you an additional free consultation by e-mail or phone.