Ask HN: In what scenario can a company legally remove your equity? | Hacker News Reader

Ask HN: In what scenario can a company legally remove your equity?

5 pointsrortaw25 comments

Hi!

I recently quitted a startup that I spent many years at. I was the first employee as engineer, and I own equity (not option). The management team has changed drastically over the years, and the tech that enabled the business is now considered a cost. The politics got overwhelming, which is why I quitted. The startup has made a few private rounds and added many members to the board. The management does not like tech at all. They offered a price for my shares, which I said no because of the low offer. And I received a message from the management saying my shares are restricted and subject to board cancelation.

I cannot tell if it is an unhappy/unreasonable threat message from the management or if it can actually be possible. In what scenario can a company legally remove your equity?

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When you say "equity" do you mean you were issued shares?

Technically shares represent ownership of a part (often very small) of the company. Depending upon the class of shares you might have a certain number of votes in the running of the company.

As long as you are recorded as owning those shares "fully paid up", they cannot be taken away from you. That would be considered to be theft.

It has nothing to do with any contract. Shares are transacted as if they were physical objects or title deeds to property, etc.

If you didn't actually pay for those shares and you have no share certificates, then things can get murky. As a shareholder, you are entitled to access the share register and verify the entries.

The above is based upon my practical experience, but I'm not a lawyer, nor accountant. As others have suggested if there is significant money involved then you need qualified legal representation.

I have a small percentage of ownership, and I receive K-1 for my tax. I don't have a contract, because our startup was purchased and spun out, and when it spun out from the parent company, I was given percentage of the company.

> I have a small percentage of ownership, and I receive K-1 for my tax. I don't have a contract, because our startup was purchased and spun out, and when it spun out from the parent company, I was given percentage of the company.

What's the legal structure (eg. LLC, partnership, S-corp, etc.)?

I suspect it probably comes down to what's in your contract. I've seen situations where the company has the option (at their choice, not yours) to buy stock off you when you leave the company. If it's a significant amount of money, probably makes sense to talk to a lawyer.

> I suspect it probably comes down to what's in your contract.

Yes, but with the caution that a lot of documents rise to the level of 'contract' legally speaking, without ever being called that.

So, keep all your correspondence and cast a hairy eyeball on anything you, or they, or both, sign. Even if some things are left out of the job offer letter, if they are mentioned elsewhere they may still be legally binding.

I'm most familiar with this being applied to negotiating benefits. eg. if a continuing ed or training budget was mentioned somewhere in your correspondence with the hiring manager (but not in the actual offer letter) and the company cuts back on it after you start working there, you may still be able to hold them to it, or use it as leverage to negotiate something in its place like attending conferences.

Heavy emphasis on 'may'. IANAL, TINLA, and above all make sure to keep things friendly rather than adversarial, employers do not respond well to being strong-armed.

Anyway, similar promises made in writing relating to equity may also be binding, though the actual paperwork is much more likely to contain phrases like 'supersedes all prior or contemporaneous negotiations, commitments, agreements' etc. that can make the whole issue moot (so if you were promised something, make sure it appears in the final paperwork as well if at all possible, even if you only copy the promising documents in question as an attachment.

Again — IANAL, TINLA.

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