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Is it legal to print shares in a corp and use them to secure a loan, beyond the nbr authorized in the articles of incorp?

San Francisco, CA |

I loaned $60K (in 2 stages) to someone (D) as an investment/loan to help their business, which is listed in our promissory note as a business entity incorporated in CA. The consideration was shares in this corporation, 65,000 (nominally valued at $1 each). D gave me a printed certificate (which really looks like a cheap document printout) claiming to represent (eg) 30,000 shares. After D failed to repay, I checked with the Secretary of State of CA and learned that the corporation is no longer valid (possibly D did not keep up with the filing requirements), and furthermore it's articles of incorporation only authorized up to 20,000 shares. Does this qualify as theft by trick or other form of larceny, such that I could use a threat of criminal prosecution as leverage to try to get paid?

Attorney Answers 4


  1. Sounds like this might be a case. If the owner released shares without amendments to the articles of incorporation, thus diluting the value of your own shares, this would be a solid case for fraud and breach of various duties.

    In law everything is in the details. You should talk to a business litigator in your area to really flesh out the details and do some research.

    Matthew Johnson phone# 206.747.0313 is licensed in the State of Washington and performs bankruptcy, short sale negotiations, and estate planning in Whatcom, Skagit, Snohomish, King and Pierce counties. The response does not constitute specific legal advice, which would require a full inquiry by the attorney into the complete background of the facts and circumstances surrounding this matter; rather, it is intended to be general legal information based on the limited information provided by the inquirer; it This response also does not constitute the establishment of an attorney-client relationship, which can only be established after a conflict of interest evaluation is completed, your case is accepted, and a fee agreement is signed. Johnson Legal Group, PLLC


  2. Depending on the facts, yes. Could also be good case of fraud, misrepresentation, etc. Find a local business litigation attorney to help sort things out.

    Our replies to Avvo questions should not be considered specific legal advice to any individual, and no attorney-client relationship is formed with you. Our aim is to provide general principles that may be useful to the Avvo community as a whole. You should seek individual legal advice pertaining to your specific factual situation, and the laws applicable to your jurisdiction. Moore & Moore Attorneys at Law -- thelaw@mytrustedlawyer.com


  3. Non-lawyers have no clue how to issue shares. Get a business litigator as soon as possible. Never threaten criminal prosecution. Just do it.

    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 avvo.com terms and conditions item 9, incorporated as if it was reprinted here.


  4. Threatening criminal prosecution is legally murky; however, it is best for you to just do it. Start with a police report, and then get a copy to share with the DA's office. One note of caution, though, is that both the police department and the DA's office are extremely understaffed right now, and non-violent crimes are given the lowest possible priority.
    You need to consult with a business litigation lawyer as soon as you can. There are quite a few good ones in San Francisco, and my firm is right across the Bay Bridge.

    www.bayoaklaw.com. 510-208-5500. This answer does not create an attorney-client relationship. It is not legal advice, because it is only of a general nature. 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 Avvo.com's Terms and Conditions are incorporated in this disclaimer as though it were printed here.

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