QLD Commercial Law - Rights of a Minor Shareholder?

[StaceyKeat]

Hello. I'm a minor shareholder (15%) in a small consulting business. We do have a legal shareholder agreement. Currently, the business generates $350k in income but incurs $350k in expenses including 2 salaries at approx $80k.

The major shareholder and CEO is investigating a JV and has given me some options about my current shareholding, including me:

-providing a cash injection

-generating income for the business via consulting

-receiving a reduced shareholding instead of providing an additional injection of funds

-buying me out for $20,000 in the form of an interest-free loan when the business reaches key financial milestones.

I was keen to just hold on to my 15% until such time as the business becomes profitable. Is what the major shareholder asking of me fair and reasonable? I can't seem to find clear info to guide me. Any help on commercial law is very welcome.

Many thanks.

 

[Tim W]

Are you one of the salaries?

 

[StaceyKeat]

Are you one of the salaries?

No I'm not.

 

[Rod]

Is he trying to force an option on you?

You cannot be forced to sell unless there is something in the shareholder agreement saying he can.

It sounds like you are being mistreated as minority shareholder if all gross profits are being absorbed as employee expenses of the other main shareholder/s.

You have to look at what you want and either do nothing because this is what you want, or negotiate for a better deal. The last option looks dodgy.

 

[StaceyKeat]

Not force but it seems to suggest options for me to inject capital based on having a shareholding. The major shareholder is working in the business and said "If I wasn’t continuing to effectively pump money in (or in my case, take a considerably reduced salary), the shareholding wouldn’t be an issue – but unfortunately that’s not the case."

 

[Rod]

You need to understand the company finances to see if what he is saying about needing a reduced salary is correct. The shareholding is somewhat independent of the company finances and only relevant if a capital raising is being considered.

 

[StaceyKeat]

I have seen the company finances and the reduced salary is correct and reasonable. Yes, capital raising is being considered for a JV and it seems that I have not much choice about making a contribution to this in some form via the suggested options...

 

[Rod]

If the JV and capital raising doesn't discriminate against you then it is likely to be reasonable.

IE: If they offer you the ability to participate in the capital raising on fair terms this would be reasonable. If you can't participate for any reason of your own, it is not because you have not been offered a choice by the company.

Another way to look at it is that you may have a smaller slice but of a larger pie if you can't inject more funds.

 

[StaceyKeat]

OK thanks.

What about the $20,000 to buy me out when the business does make a profit? I'm reluctant to take this initial amount as I worked very hard for a year to launch the business (shareholding instead of salary). Would they have needed to do a business valuation to offer me this amount or does this work out based on the $350k income and expenses mentioned?

 

[Rod]

What about the $20,000 to buy me out when the business does make a profit?

Can't make any judgement call on this with so little information. Too many factors not listed to consider making a guess.