Who owns the company before the founders&#39; shares vest (HBO&#39;s Silicon Valley plot point)? In the HBO show Silicon Valley, an important plot point is when one investor fires the founder/CEO against everyone's objections. Originally, the founder gave 10% of the company to investor A (a business incubator), who also got a board seat. The founder kept 1 board seat. The company later accepted a 5% investment from investor B, in exchange for 1 board seat, and then got a loan (1) from investor C in exchange for 2 more board seats. Investor C later sold his interest and board seats to investor B. Using 3 out of 5 board seats, investor B then fired the founder and CEO, whose shares, it's revealed, have a vesting schedule. My question is: who owns the company at this point (assuming a negligible fraction of the shares vested)? Wouldn't investor A's 10% stake trump investor B's 5% and give him the right to elect all board members? (The company in question is based in California and incorporated in Delaware) (1) with the option to take repayment in the form of equity
Governing Law The governing law in this fact pattern would be the law of Delaware which under the relevant choice of law rules governs the internal affairs of a Delaware Corporation, specifically, the Delaware General Corporate Law (Title 8 of the Delaware Code starting with Chapter 1), as interpreted by the Delaware Courts, especially the Delaware Court of Chancery and the Delaware Supreme Court. The incorporators of the Corporation who file the Certificate of Incorporation for the Corporation with the Delaware Secretary of State control the Corporation until its directors are appointed by the incorporators, and once the directors are appointed (unless the directors are named in the Certificate of Incorporation itself or a different method for their appointment is set forth in the Certificate of Incorporation), and the shares of stock in the Corporation come into being when they issue shares. See, primarily 8 Delaware Code §§ 101, 107, 151, 152 and 158. But, the incorporators and directors may be subject to oral or written agreements, or to fiduciary duties (e.g. if the incorporator is also an attorney for the founders), that significantly limits their discretion in this regard. Also, certain rights arising from a subscription agreement (which is an agreement to purchase shares not yet issued of a corporation), must be in a signed writing to be enforced (subject to certain common law exceptions). 8 Delaware Code § 166. Application To Hypothetical Facts Using 3 out of 5 board seats, investor B then fired the founder and CEO, whose shares, it's revealed, have a vesting schedule. My question is: who owns the company at this point (assuming a negligible fraction of the shares vested)? Wouldn't investor A's 10% stake trump investor B's 5% and give him the right to elect all board members? Corporations formed under Delaware law have very broad discretion to tailor their terms to the wishes of the parties, and most of the statutory provisions are merely default rules of law that apply when not displaced by the governing documents of the corporation. If the governing documents provide that particular investors get board seats, then, notwithstanding the share ownership of the investors and shareholders, those investors get board seats. With respect to directors, this authority is formally expressly primarily at 8 Delaware Code § 141(a). Control of a corporation doesn't have to align with beneficial economic ownership of a corporation under Delaware law (or for that matter, in for profit corporations in most U.S. jurisdictions). It isn't uncommon in a Delaware corporation for control of a corporation to be vested in shareholders (and even some non-shareholders) who control only a minority of the economic value of a corporation's shares. There are several different ways that this can be documented from a nuts and bolts legal perspective, but the bottom line is that he who controls the board controls the corporation, and that selection of the board of directors can be varied by agreement as expressed in the governing documents (always a certificate of incorporation, usually bylaws, and sometimes also some sort of shareholder's agreement or voting trust).
There is certainly precedent. This list of the 10 biggest class action lawsuits in the world indicates that 8 of the 10 were by investors against their own company. In any event your analysis is flawed. The people who initiate the class action may (probably are) no longer be investors because they sold their shares and realised their losses. Further a legacy investor who didn't buy on the basis of the company's wrongdoing would not be entitled to damages. Finally, an investor who bought at say $100 on the basis of false information (like the cars were legal when the company knew they weren't) and now hold shares worth $40 will wait many years (if ever) to make good their losses: a lawsuit will be quicker and more certain.
Tim Lymington got it right in the comment. If they don't get a wage, but expect a share of profit and/or loss, they are your partners and would be "members" of the LLC. Then you don't need workers comp or even to pay any salary at all. Of course, they will also be entitled to a share of the business, but from the description it sounds like they should be.
As in most of the world, there is a BIG difference between a person running a business and a person owning a company which runs a business. In the first case, the person is liable for all the debts of the business, in the second case, providing they have fulfilled the legal duties as am owner/director (as applicable) they are not liable for the debts of the company. One of those legal duties is to stop racking up debts you can't pay. In either case, your friend needs professional advice (legal and/or accounting) NOW! A person who is insolvent (cannot pay their debts as and when they fall due) can seek protection from their creditors through bankruptcy. German bankruptcy law, by most standards, is brutal but not so brutal as to take away parenting rights or put the person in jail.
There is no general rule about ownership: one parking lot I know is owned by the city, another is owned by the company that operates the mall, and in a third case it is owned by a third party who doesn't operate the mall. Either way, the owner of the parking lot has the property right to limit how it is used, and their agents (security guards, for example) can request that you refrain from skateboarding. They can evict you; they may not have the legal authority to physically toss you off the property, but they can probably perform a citizen's arrest for trespassing. None of this depends on how many cars are in the parking lot. It is more likely that a governmentally-owned parking lot will have a corresponding law restricting its use (whereas in the case of a private parking lot, restrictions center around general property law and the law of trespass).
If I can summarise: Jane gave money to Joe on the understanding that he would give it to Bob, Joe kept the money. This is matter between Jane and Joe, Bob is not involved. Edit The OP has stated that Joe did give the money to Bob. In that case, Joe was acting as Jane's agent and he discharged his agency. This is a matter between Jane and Bob, Joe is involved only so far as he was a witness to what happened.
The President wouldn't be in breach of Insider Trading Laws (Section 10b of the Securities Exchange Act) since he has no information resulting from a position of trust within Twitter (or as a trusted provider of services) and no ability to depress their stocks through intentionally fraudulent practices. [O]ne who fails to disclose material information prior to the consummation of a transaction commits fraud only when he is under a duty to do so. And the duty to disclose arises when one party has information “that the other [party] is entitled to know because of a fiduciary or other similar relation of trust and confidence between them.” The key word here is "insider". The President is not an insider, he's merely the user of a service. He certainly has material information, but not gleaned from a position of confidence or trust. anyone in possession of material inside information must either disclose it to the investing public, or, if he is disabled from disclosing it in order to protect a corporate confidence, or he chooses not to do so, must abstain from trading in or recommending the securities concerned while such inside information remains undisclosed. That being said, it's arguable (and I'm reasonably sure his political opponents would argue it until the cows come home) that his shorting their shares would be a material violation of the STOCK Act, specifically section 6 which requires the President to have disclosed his holdings of shorted stock to the public. It's also pretty arguable that his popularity on Twitter is a direct result of his office as President, and hence making money by publicly and messily leaving their service will result in a breach of accepted ethical standards and potential impeachment even if no specific law has been broken.
If your LLC made 300K before paying salaries, and paid 300K total in salaries, that seems quite reasonable. You might have a point if the order of events was: LLC pays 100K in salaries, LLC gets sued for 200K, LLC raises salaries by 200K. Note that the owners have to pay income tax on 300k earnings, plus whatever else employers and employees have to pay. And an LLC doesn't pay salaries to owners, it pays salaries to employees who be sheer coincidence are also owners. It's a different matter if the company pays dividends. A company must keep dividends low enough so that it can run its business, including paying damages for lawsuits that it knows about. So if the company planned all along to pay 300k in dividends, then is sued for 200k, they likely have to reduce the dividends.