By law, when a shareholder leaves a private company, what amount of money is he entitled?

Question

The company has 3 shareholders. One wants to leave and sell his shares because of relation problems. Initially the shares was worth 100 000$. Now it is worth one million. But the company is in growth and has no capital, only reinvested capitals. What will he get? By law, 100 000$ or one million?

And how will that company pay him up?

Answer 1

This is negoitiable, hopefully the other owners and company can come to some sort of agreement with him on what he can get (maybe the company can get a loan and then buy back the shares - or maybe the other owners can each buy back half).  Optionally he can simply try to sell his shares to a 3rd party or even give them to his kids or something.  However, with no prior agreement on how this is to be handled its all negotiable.  Bear in mind that this will be seen as somewhat risky so if he sells the shares he probably won't get as much as what you think the shares are worth - thus if you or the company buy them you can probably pay him a relatively conservative amount (and if he doesn't like it he doesn't have to sell - but he'll get a conservative number from a 3rd party anyhow).

Answer 2

The law is silent of this. When the corporation was formed they should have created a buy/sell agreement which would address how issues like this are resolved.

In the absence of an agreement it would have to be negotiated. Generally the shares would be bought by the other shareholders not the corporation itself. If the bylaws allow the shares could even be sold to an outsider.

Answer 3

He is entitled to the fair market value of his shares, he should sell his shares to someone.

Answer 4

Most small privately owned businesses have very detailed shareholder agreements in place that spell out these types of transactions. In almost all cases, these agreements will forbid him from selling to an outside party. Most likely there will be some formula in the agreement that they will use to calculate the value. The buyout will most likely result in him getting some cash up front and then getting the rest plus interest over several years. It would be unlikely that a growing company would have the capital to pay the entire purchase price at once.

Answer 5

Because the business only has 3 shareholders, there may be a partnership or other agreement which was signed by all the shareholders.  If so, this agreement may stipulate as to how, when and how much a shareholder can demand for his shares.

If there is no agreement, he may need to involve a lawyer and a CPA to determine what his rights are and how much he can get and when.  This will likely result in a negotiation between the 3 shareholders.

Keep in mind that, if this person is a crucial part of the business's success, leaving the company may mean that the business will need to close or that the business will loose customers/clients.  It is not as easy as going to a broker and selling stock.