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I'm a small shareholder in a startup that I have since left; now being cut out by them closing the company & starting a new one

San Francisco, CA |

I was a co-founder of a software startup that I have since left. As part of leaving, I was offered to keep a small piece of equity in the company since I worked for reduced pay and some months for free. A year later the company is now making traction and are profitable. Now, the majority shareholders have decided to deregister the company and claim it as defunct. At the same time they have registered a new company with the same product that I heavily contributed to during my time at the old company. It's the same (slightly evolved) product, same name, market, but different legal entity. My feeling is that this is a dodge to try and avoid buying me out or a ploy to remove my ownership. They haven't notified me about the deregistration or anything so I believe their intentions are malicious.

Attorney Answers 4

  1. The managers of the "old" company have fiduciary duties to all the owners of that company to do the best thing for those owners. Your description suggests that they are violating those fiduciary duties. You need to consult with a business lawyer with experience with startups. This is something that often happens when startups have long struggles then start to see a little daylight, but that doesn't mean it is legal.

    This answer does not create an attorney-client relationship. It is not legal advice. Please contact a lawyer qualified in your jurisdiction to discuss your situation in confidence, using your factual details. Avvo answers are only general legal responses. Item 9 of's Terms and Conditions are incorporated in this disclaimer as though it were printed here.

  2. I'll assume you have tried to get your piece of the pie and been denied, otherwise, this is pure conjecture on your part. IF in fact you have been turned down and this company has the same people running it and working there, same location, same phone numbers, same product(s) essentially, the same company, it's entirely possible you have the same rights v. them. Others are likely to opine here. Stay tuned...

  3. The sooner your see a business litigator the sooner you will have your matter professionally evaluated in detail. Then you can make your decision.

    The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also terms and conditions item 9, incorporated as if it was reprinted here.

  4. You own shares in a closely held company that its management believes should be closed. That is a very common situation. Did the Agreement that you signed when you left the company a year ago include a provision addressing this [highly foreseeable] eventuality? Or the more optimistic situation of the company experiencing an "exit event" such as agreeing to be bought or selling its shares publicly? In short, what did you and the company agree to a year ago? Answering that and considering what the answer means to you now is step one.

    The general rule is that the officers, directors and senior managers of a company owe a fiduciary duty to the company NOT to waste its assets or convert its assets for their own personal benefit. IF a shareholder [you] have evidence to support a claim that the managers are violating that fiduciary duty then the shareholder may, after passing over some procedural hurdles, file a "shareholder derivative lawsuit" against those managers, personally, and against the company. The lawsuit essentially asks the court to protect the company from its managers.

    Speak with your own California-licensed business litigation attorney. Good luck.

    The above response is general information ONLY and is not legal advice, does not form an attorney-client relationship, and should NOT be relied upon to take or refrain from taking any action. I am not your attorney. You should seek the advice of competent counsel before taking any action related to your inquiry.

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