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How are shareholders paid?

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M

michellesl

Guest
State: NY
I own 10% of a C corp (shareholder) that is internet based, and is a corporation in both Nevada and New York. I became a shareholder because of some initial investment of my time and money.

The business is very successfull - earning NET profit of $350,000/year after only 6 months of being online. The other owner (90%), is taking all earnings, and believes this arrangement to mean that only when the company is sold that I will receive any money from the sale. This person has told me that I am not due any payments/dividends/bonuses...that a shareholder just means they get a portion of the earnings at the time of sale.

Is this correct? Or, should I be getting 10% of the companies NET income each year? And, if this is the case, what is preventing the 90% owner from simply claiming that there is NO profit at all because he pays himself a salary of $350,000 (which is all NET profit).

I'm very inexperienced at this (and so is the other owner), but I feel like this is somehow not "right" or "fair".

Any recommendations would be helpful.

Thanks.:confused:
 
Last edited:


ALawyer

Senior Member
It's not right or fair.

Shareholders, as such, only get dividends when and if declared by the Board of Directors, and can usually get cash out only on sale of the business or some other liquidity event, like an IPO.

Great success can be very stressful to the corporate dynamic. All of a sudden, your contributions are being devalued and the 90% guy probably resents having given you 10%. He wishes you could go away, and as you won't, you have a problem.

Minority shareholders, such as you with 10%, are almost always subject to the whims of the majority, so long as the 90% shareholder is not guilty of self-dealing. Employees of and advisors to the corporation can receive salaries, perks, bonuses, etc. He probably controls the board of directors, which normally sets executive compensation. While it can agree to pay him a very large salary and bonuses, it can't "waste" corporate money. Thus there is at least in theory some reasonable limit on what can be paid and as what he (and others) are not paid is kept in the company, you benefit from the company's retained earnings, and what is not paid out is added to the company's net worth.


You really need some advice from a VERY experienced person on how tohandle this. It can blow up the deal, and lead to great hostility that can wrechk a bsuiness, and heavy litigation costs. If you and s/he get along, he should work out sometyhing to pay you for ongoing advisory services, like 11% of what he gets as salary and bonus.
 

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