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Question added to topic Legal Basics For StartupsApril 2, 2010

What are my rights as the minority shareholder who is being laid off by majority shareholder?

I'm a guarantor on the company credit line? We are the only guarantors on the credit line. There are two other minority shareholders, one was laid off nine months ago but kept his shares, and the other is still working at the company.
The rights of a minority shareholder depend on a number of considerations:

1. The terms of your shareholder’s agreement
2. Your state’s law
3. whether the minority shareholder is being bought out of his ownership interest or merely terminated as an employee.

Often, employment and ownership are linked--for example, if your employment is terminated, you are deemed to offer your shares to the company for sale.

If that's the case, you have a strong argument for not having to continue to advance funds to a company that you no longer have an interest in. Yet another factor will be the terms of the credit line agreement: whether the guaranty is contingent on you remaining an owner of the company or not.

But it's best to review your shareholders' agreement (assuming you have one) with a local attorney. Minority shareholders do have rights concerning fair treatment and you may have negotiating leverage to get yourself off the credit line if it turns out the majority shareholder hasn't done right by you, which could be a violation of your state's corporate laws.

Nina L. Kaufman, Esq. is an award-winning New York City attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.

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