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I left a startup recently and had equity that vested (about 1/5 of a percent).

I have a signed contract to this effect.

As the parting wasn't necessarily the most amicable, is there anything I need to do to maintain my interest in these shares?

At the current valuation of this company, 1/5 of a percent is not trivial and I just want to make sure that if/when an exit occurs my equity will be honored.

I am no longer in communication with the company, but I have my contract that clearly states what percentage of equity I already have vested.

Should I email them asking to be updated on current valuation and exit plans or just assume that their lawyers will contact me when an exit occurs?

What are my rights as a shareholder, if any?

Thanks.

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Where in the world is the company located? If you're in USA, maybe state and type of company (S-Corp, LLC). – Jesper Mortensen♦ May 9 '10 at 21:49
CA, C-Corp or S-Corp, Not sure – leftAstartup May 9 '10 at 22:39

4 Answers

up vote 2 down vote

I would do my best to repair the relationship and stay in touch with what is happening in the venture. You don't want to rely on lawyers - that tends to be messy and expensive.

Have a read of "The Accidental Billionaires", (story of Facebook). It's an interesting account of what can happen when shareholders are left out of the loop.

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I didn't mean to imply that you shouldn't see a lawyer. If you need understanding of contracts and proceedures, or representation, you should. My intention was to encourage you to be proactive and take responsibility for your outcomes rather than relying on other parties to act in your best interests. You don't want your energy to be consumed by a legal battle down the track when you could have sorted it out more amicably now. – Susan Jones May 11 '10 at 9:55
While the story of facebook ins interesting, anything written by Ben Mezrich is suspect. He likes to be creative with "facts". I was intrigued by 2 of his other books but disappointed when he felt the need to embellish stories with his own idea of entertainment. – TimJ♦ Oct 6 '10 at 21:20
Yes, it seems his book has a bit of embellishment. However, I think my point stands that if you own shares in a company, you want to be in the loop and know what is happening. – Susan Jones Oct 11 '10 at 4:05
up vote 4 down vote

Meet with a good attorney and review your employment contract and your equity grant paperwork.

Then, have your attorney send the firm a warm and positive "just confirming these facts and please keep my client posted on developments" letter.

You need to be pro-active on asserting and maintaining your legitimate claims now.

Good luck.

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up vote 3 down vote

Disclaimer: I am not familiar with US law. Please see an attorney, and don't get worried before an attorney tells you to. :-)

I'm a little taken back by something no-one has mentioned yet. Share certificates. Over here, shares are registered to the owners name. For small early stage companies the share certificate might simply be a plain piece of paper, with a legal text that grants shares, mentions the nominal value and the series of issue etc, and is signed as required. In this case, the owners name is simply written on the share certificate itself, and and the company secretary keeps a record of all shares issued.

If you don't have a share certificate, then my gut feeling (without knowing US law) is that you don't have any shares at the moment? You have a contract that say you should be given shares now, but it hasn't happened yet. If the breakup was less than amicable, maybe there is a problem here.

So I'd advise you to contact a lawyer, identify the open issues, and send a warm an positive letter to the company, as Civil and Thoughtful suggests.

asking to be updated on current valuation and exit plans or just assume that their lawyers will contact me when an exit occurs?

Once the status of your shares is sorted out, I would say keep reading industry websites, and set up a google alert on the company name. The company is not required to send you ongoing newsletters of what is happening, their communication with the shareholders is mainly the annual report and the annual shareholders meeting. If an exit comes up, then there will generally be an offer to all shareholders to sell/exchange their shares at a set price, and I would expect you to be notified of this.

What are my rights as a shareholder, if any?

Mainly to vote at the annual shareholders meeting with the number of votes your shares give you, to receive pro rata dividends if the company chooses to pay out dividends; see this overview from Wikipedia.

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up vote 1 down vote

You should have your contract reviewed by an attorney. It will tell you your rights - typically, separation is mentioned. Let me know if you want me to review it for you. I won't charge you for the review and brief advice of where you stand.

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wow, nice offer! – TimJ♦ Oct 6 '10 at 21:18

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