Corporation Ownership and Shareholder Disputes
Resolution Lawyer for Business Disputes
Lewis resolves shareholder disputes and concerns surrounding the ownership of stock in a corporation.
In Alabama, the Alabama Constitution and statues such as the Alabama Business Corporation Act establish rules for the ownership and issuance of stock in a corporation, and for the sale, transfer, and pledge of stock. If a corporation is formed in another state, such as Delaware, different and sometimes conflicting law may apply.
The ownership interests in an Alabama business corporation must be represented by stock certificates unless the corporation’s articles of incorporation or bylaws or a resolution adopted by the board of directors states that the ownership interests are un_certificated. Alabama statutes require these certificates to contain specified information, including any restrictions on transferring shares. Failing to follow some of these formalities does not necessarily invalidate the ownership interest although an owner may sue to compel issuance of a certificate. The absence of properly issued stock certificates may complicate shareholder disputes. However the legal effect of a transfer of title to corporate stock is generally independent of the rules for corporate record keeping of stock ownership.
Stockholders own corporations. However, ownership issues may be clouded by an array of issues:
- Failure of proper action to authorize issuance of stock. Only stock authorized by the governing documents may be validly issued.
- Failure to pay for stock with money, labor done, or property received. The Alabama Constitution provides that “[n]o corporation shall issue stocks or bonds except for money, labor done, or property actually received; and all fictitious increase of stock or indebtedness shall be void.” Neither promissory notes or future services may serve as payment for stock. With director approval past services may serve as the consideration for un-issued stock. Issued treasury stock may be exchanged for a promissory note.
- Inadequate non-cash consideration. Inadequacy of consideration or the failure of directors to determine the adequacy of non-cash consideration received in payment for stock may derail subsequent transactions.
- Failure to pay par value or the subscription price. While stockholders have limited liability, they may be liable to the corporation for purchasing stock at below the designated par value of the stock, or for any unpaid stock subscriptions.
- Failure to give 30 days notice of a stockholder meeting to increase stock or indebtedness. The Alabama Constitution requires a 30 day notice, unless waived by all stockholders attending, to increase stock and some debt. The Alabama Constitution also requires that owners of 2/3s of the stock approve the issuance of preferred stock.
- Preemptive rights. Unless the articles of organization require otherwise, stockholders have the preemptive right to acquire unissued stock proportionately to their holdings.
Laying aside questions of issuing shares by the corporation, issues often arise concerning promises to sell, buy, transfer or pledge stock ownership:
- A sufficient writing must exist under the statute of frauds to enforce the sale of stock not traded in organized markets.
- What is a sufficient written and signed memorandum to avoid the statute of frauds?
- Has a contract of sale been breached?
- Was the contract or transfer of stock infected by fraud?
- Can the transaction be rescinded returning the parties to their original position?
- Do the anti-fraud provisions of state and federal securities law apply.
- In private placements were regulatory requirements met.
If you need assistance in resolving corporate ownership and shareholder disputes, contact Lewis at 205-939-3900 and set up a consultation.