Legal Question in Business Law in New York

Transfer of Ownership

Hypothetically, a family-owned entertainment company, based in NY State, has floated 49% of its stock. The other 51% is owned by the family. One male child has 15%, one female child has 15% and the father has the remaining 21%. The male child wants to assume control of the company, how can he do it? And how can he ensure that once he has working control he is insured against his sibling or his father wresting control back from him?

In addition, could the son put his controlling stock in trust to an unborn child? I have no idea how law works in these situations, and essentially I want to know how the son can take control of the company, how he can ensure himself from retaliation from the father and then how he can leave the company in trust to an unborn child and if he does so, whether the mother of that child could then assume control of the stock. Is this at all feasible?


Asked on 12/31/01, 7:42 am

1 Answer from Attorneys
John Friedman Law Office of John K. Friedman

Re: Transfer of Ownership

Dear Sir or Madam:

I assume for purposes of your question that you are the son with 15%. To gain control of the company you must own or control at least 51% of the voting stock (often called common stock) though it is not unusual in a family-controlled business for greater voting rights to attach to classes of stock besides common. Assuming also that the company is publically traded, you would have to initiate a tender offer for the percentage of voting shares necessary to give you an additional 36% of those voting shares. Depending on which exchange the stock is listed on, the rules are determined by that exchange, the SEC and the state in which the company is domiciled. In regard to trusts, this is trickier and requires a more expansive fact report before a complete answer can be given. Can a sibling, parent (or even a stranger) then wrest control from you (assuming you successfully get control? Again, this is possible (through the same method you yourself would use) though once you have control you may be able to structure the company's capitalization in such a way as to make it impractical.

Sincerely,

John K. Friedman, Esq.

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Answered on 1/02/02, 10:39 am


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