In California, can the shareholders of a close Corp agree to give a 40 percent shareholder a 50 percent voting power?

Asked almost 3 years ago - Los Angeles, CA

I am buying into a Corp and will have 40 percent of stock and there are 5 other shareholders. One shareholder has 50 percent of the shares and the others only have about 5 to 10 percent each. I am insisting that I have 50 percent voting power even though I have 40 percent of shares. The others agree to this. Can we state this in our bylaws and will it be enforceable? Can this be done?

Attorney answers (3)

  1. Phillip Monroe Smith

    Contributor Level 18

    5

    Lawyers agree

    Answered . You can accomplish what you want in a shareholders agreement where all the shareholders agree to this writing. A change in the by-laws is unncessary.Have an attorney draft the agreement.

    THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can... more
  2. Kenneth Allyn Sprang

    Contributor Level 15

    6

    Lawyers agree

    Answered . You may be able to accomplish this through agreement, but I would be inclined to issue different classes of stock. You cannot do that as an S corporation, though. I would prefer that your voting power once established not be subject to continued approval of your fellow shareholders. However, if you cannot issue different classes, a shareholders agreement may work. You might also use a voting trust or similar agreement which guarantees you 50% of the votes.

  3. Robert John Murillo

    Contributor Level 20

    5

    Lawyers agree

    Answered . As noted correctly by my colleague, you can provide for voting rights in a shareholder agreement. You can also use a voting trust and other mechanisms.

    If all the shareholders are active in the business, there should be fairly limited securities offering issues. If, however, any of the shareholders are merely passive investors then there are securities issues that must be considered and addressed or this may be a violation of state and federal law.

    Contact a local business attorney.

    This answer is for informational purposes only and is not legal advice regarding your question and does not... more

Related Topics

Small business s-corporation

An S corporation does not pay federal income taxes, instead passing its income, losses, deductions, and credits through to its shareholders.

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