Legal Question in Securities Law in California

My question is about proof of ownership of stock. I developed intellectual property while at a small start-up company I�m no longer with. I was an independent contractor and we had no work for hire agreement. The company has agreed to give me x number of unregistered common shares for this IP. This is all spelled out clearly in two documents, a Bill of Sale for the property and a Stock Subscription Agreement, which I�ve not yet signed and sent back. The company owner balks at issuing me a certificate and I understand there are reasons for moving away from physical certificates. I�d rather not open a brokerage account. The owner feels the Bill of Sale and Subscription Agreement are proof of ownership. Is this true?


Asked on 3/12/11, 11:23 am

2 Answers from Attorneys
Daniel Bakondi The Law Office of Daniel Bakondi

This is not the type of question for which you want a quick answer to save a quarter. The whole situation including your interests and the company need to be assessed. I handle corporate and securities litigation, and you are welcome to call me for a free consult.

Best,

Daniel Bakondi, Esq.

[email protected]

415-450-0424

The Law Office of Daniel Bakondi, APLC

870 Market Street, Suite 1161

San Francisco CA 94102

http://www.danielbakondi.com

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Answered on 3/12/11, 12:21 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Well, here's a quick answer that might give you at least some help.

The California Corporations Code gives all shareholders certain rights. These include the right to receive notice of the corporation's annual meeting (Corps. Code section 600, 601), and to participate and vote for the directors (700, 708). Assuming this corporation has at least two shareholders, it must have at least two directors (Corps. Code 212), presumably one of whom is the person you refer to as the owner. Who is the other?

Also, shareholders have the right to inspect the company's bylaws (Corps. Code 213) and books and records (Corps. Code 1600, 1601(a), et seq.). Ask to see the secretary's shareholder register to insure that your name is on it, and that it specifies the number of shares owned and held by you, and by all others.

The percentage you own may be more important than just being a holder. You need to have that specified in your agreement. Once you are a minority shareholder, your bundle of rights includes a fiduciary duty by the company and its controlling shareholder(s) to avoid diluting your interest by watering the stock or otherwise without the company getting value in return.

Further, I don't believe a brokerage account would help you a bit. Brokers can't do transactions in private companies.

Feel free to contact me directly for further discussion, at no obligation.

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Answered on 3/13/11, 4:02 pm


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