Most of my clients who are incorporated have a limited number of shareholders, many of whom actually get along quite well.  But every once in a while a client comes to me with a disgruntled minority shareholder.

Balancing the rights of a shareholder’s legitimate concerns, with the ability of the company to avoid having personality clashes interrupt business is not always an easy task.  This blog post will address this balancing act from the standpoint of a small company with an annoying minority shareholder who doesn’t really have any complaints beyond personally disliking the majority shareholder. It is not meant to suggest minority shareholders might not have legitimate concerns.  That situation is just not the topic here. However, minority shareholders with legitimate concerns can certainly benefit from reading this to see what rights they could enforce.

Having a nuisance minority shareholder may be the result of an employee stock option plan (don’t get me started on why you may not even want to bother with one); a “friends and family” round investor who is now neither friend nor family; or a founder or early consultant who was given stock and is only now realizing that it’s pretty worthless if the company is never going to go public or be sold.

Most minority shareholders accept that if they aren’t working for the company their stock is worthless unless there is a buy out or IPO. They therefore park their stock certificate in a desk drawer and never think about it.

But once in a while such shareholders decide they want to make your life miserable – usually for reasons totally unrelated to the corporation. But the fact remains a minority shareholder can be a nuisance.  Beyond the nuisance value, there can be criminal charges brought if you don’t handle things properly.

Minority shareholder rights fall into three main categories: 1) the right to meet and vote; 2) the right to get information; and 3) the right to sell their stock to someone who might dislike you even more than they do. Let’s address your responsibilities in each case.

Shareholder meeting and voting rights:

Shareholders, that’s all shareholders, have a right to meet and vote on certain BIG issues, as well as to elect directors once a year.  You can avoid having to meet personally with shareholders in two ways: 1) meet electronically or 2) substitute a “consent” for a meeting.

So step number one in avoiding problems with minority shareholders: read your Bylaws, and hold your meetings. There are ways to limit the pain associated with this by amending the Bylaws and managing the meetings and consents properly.

The Right To Get Information

Small (under 100 shareholders) corporations do not have to issue annual reports provided that their Bylaws waive that obligation.

However, even tiny corporations have to provide certain shareholders certain information if requested.

Failure to provide the requested information can subject the officer or director who withholds the information to criminal liability, so while you should be prepared to provide this information, don’t release it to someone who you think will use it inappropriately without talking to an attorney.

Again, the first step is to read and then if appropriate amend your Bylaws.

The Right To Sell Their Stock

A corporation can, in its Bylaws, restrict the right of a shareholder to sell his or her stock.  This is usually done by providing a “Right of First Refusal” which nicely balances the right of the shareholder to liquidate his or her interest and the corporation to limit who becomes a shareholder. If you want this sort of restriction, it should be in your Bylaws.

Without any restrictions, a shareholder who might not care one way or the other could sell his or her stock to a competitor or anyone else who didn’t share the best interest of the company.

Again, your Bylaws can be your best ally if properly written.

Are you sensing a theme? While Bylaws are often relegated to a dark and dusty drawer (or an old 3” floppy disk from the early years) in small corporations, it is wise to review and update them in light of the possibility of … the minority shareholder from hell.

Finally, one of the biggest risk areas is in your employee stock option plan.  There isn’t room here to address all of the risks, and the work-arounds to avoid them.  But remember, many ex-employees go through a period of resentment if they are fired.  If that resentful employee has stock options, you want to be able to limit their involvement in the Company.  A review of your stock option plan may save you lots of aggravation in the future.

Minority shareholder issues are best handled in advance – so you don’t get stuck with THE HORROR of a Minority Shareholder.

It was only then that my frustration level pushed me to enlisting the help of the twitteratti.

Several hours after the #respondtwitter hashtag started making the rounds I got an email from a human being not only a human being, but one who responded to questions with answers that were responsive to my questions – not automated non sequiturs.

And now I am happy to report my client’s trademark is under his control as a Twitter account.

Twitter - Please Respond

I’ve been trying to clear up a problem for a client involving a Twitter account. The story of my failure to get anything but automated responses is posted here.

AB 469 requires that all private employer give non-exempt (hourly) employees written notice that includes:

• The rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime, as applicable.
• Allowances, if any, claimed as part of the minimum wage,including meal or lodging allowances.
• The regular payday designated by the employer
• The name of the employer, including any “doing business as” names used by the employer.
• The physical address of the employer’s main office or principal place of business, and a mailing address, if different.
• The telephone number of the employer.
• The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.
• Any other information the Labor Commissioner deems material and necessary.

The Labor Commissioner’s office has a template which is available here

AB 22 : This law prohibits most employers/prospective employers from obtaining a consumer credit report about an applicant/employee, for employment purposes, unless the position of the applicant/employee is a management position or one meeting an assortment of specific criteria mostly involving being in a position of handling personal information or money.

AB 1236  Confirms that E-Verify which is used to verify that employees are authorized to work in the US is voluntary as far as California goes.

AB 1401 Changes the enforcement of the laws concerning child employment in the entertainment industry.

SB 559 brings California law into compliance with Federal law in prohibiting discrimination in housing or employment based on “genetic testing.” In other words you can’t discriminate because you know someone was tested for predisposition to certain diseases.

AB 887 adds “gender identity” and “gender expression” to protected categories housing and employment purposes.  This effectively requires that an employer allow an employee to dress consistently with the employee’s gender identity.

SB 757 requires employers provide equal benefits for employees’ same sex spouses or registered domestic partners as they do for married employees and SB 117 applies this to most California government contractors whether they are California employers or not.

SB 299 requires that employers continue to maintain health benefits for employees who are out on maternity and pregnancy related leaves at the same level as if the employee were not on leave.

SB 1304 require employers with more than 15 employees provide paid leave for the purpose of being a organ or bone marrow donor.

AB 592 prevents employers from “interfering with, restraining or denying an employee’s right to family leave in addition to “refusing” family leave. In other words, if someone is entitled to take family leave you can’t make it difficult for them to do so.

SB 459 prohibits a “pattern and practice” of “willfully misclassifying” employees as independent contractors.  As many of you know this is a pet peeve of mine, and I find the chilling effect these laws have on the legitimate use of ICs to be dangerous for a thriving business economy. Having climbed on and off my soap box, the penalties under SB 459 range from $5,000 to $25,000.  This also makes advising someone to misclassify workers liable along with the employer.

And since the soap box is here anyway, even Lexis-Nexis which does not normally editorialize in it’s legal updates stated about SB 459 “This legislation is likely to have a chilling effect on the ability of businesses, especially small businesses, to retain the services of independent contractors.”

AB 240 give the Labor Commissioner broader authority to formulate awards in wage and hour claims than was previously allowed, specifically it allows for an award of liquidated damages where actual damages cannot be ascertained.

Union Activity – there was some new legislation but since it doesn’t apply to most of my clients I’m not going into it here.

Farm Labor – there was some new legislation but since it doesn’t apply to most of my clients I’m not going into it here.

Confused?  Well I’m a little overwhelmed by it all.  But I’m not confused so shoot me an email if you have any questions.

I also had a tab for lawyer jokes.  And those of you who know me, know that’s so “me.”

My practice is also exactly the same – I represent small to mid-size businesses and my list of services hasn’t changed much.

Over the last 15 years my practice has grown and then been scaled back (I hated having a lot of employees), Willie passed away, but here I am, 15 years later, still doing what I love. And still hanging out on the Interwebs.

I’ve used this to my advantage over the years. And in this economy it’s a wonderful way to get higher level employees, happier employees, which mean greater productivity, without additional cost.

However it’s important to think these types of programs through. For example, let’s look at telecommuting. Allowing employees to work at home has many advantages:

• Fewer hours away from home for the same number of hours worked
• Lower facilities costs
• Environmental benefits – fewer cars on the road
• Employees save money on gas and work clothes
• Fewer excuses for lateness or calling in sick
• Less chance of spreading germs when employees are sick
• and the list goes on

Some things that need to be considered are obvious (or should be). Managing telecommuters takes different skills from managing employees on site.  Accountability and productivity need to be closely watched.  But there are less obvious issues.

If Emmy Employee can work from home, why can’t she work from her beach house? And if she can work from her beach house, why can’t she work from a hotel at the beach. And if she can work from a hotel at the beach, why would she ever use up her vacation days?

Or what if Edmund Employee works from home and trips over his massively disorganized computer cables. Is that a workers compensation issue, or a homeowners insurance issue, or?

These issues can all be addressed if they are thought through in advance and if your personnel manual is updated to provide for telecommuting specific concerns.  But it’s all well worth the effort. Flexible work arrangements can be the “secret sauce” that a small business needs to compete more effectively.

I hate to see small businesses pay $200 to file a short, fill-in the blanks form that clients can file themselves for $25. Even if I do it for a client it will only cost $25 or $50 dollars in fees plus the filing fee so $200 is a total rip off.

Of course, like anyone living in the world today I get my share of real scams – people who have money secreted all over the place and if I will send them $XX,XXX dollars as a bond they will send me $Y,YYY,YYY dollars to hide/invest/protect, of which I will get a heft percent as a hiding, investing or protecting fee.

But wow, from one of Muammar Gaddafi’s wives? Of course if I were said wife of Muammar Gaddafi the first person I would run to if I had a problem would be a sole practitioner female Jewish attorney in s small town in California. Yes sir, how they found just the right person I do not know.

When people lived in small villages, and merchant A said something rude to consumer B, the gossip mill carried that information to the edge of town, and sometimes beyond. Then cities grew, mail order houses proliferated, and you could have customers angry with you and no one knew.

Now, if you have a problem with a customer, it’s back to the gossip mill, but this time the gossip mill is electronic, immediate and potentially permanent. Irate customers can open a website just to complain about you or your business; post a bad review on any number of “post your review” websites such as Amazon, TripAdvisor, AngiesList or many others; or post their rant on their weblog. And it’s very scary when you see that happen.

There are a few steps you can take to help protect your reputation online. The least popular is “serve your customers well; treat your employees well; listen to their complaints; make good on your promises.”

But even then it’s almost impossible not to have someone think you’ve done them wrong in some way. So here are the other steps you can take if all of your excellent service and policies don’t work.

1. Either assign an employee, hire a internet reputation firm or pick a day each month and search the internet for potential problems. Enter all possible spellings of your name and your business name into one or two big search engines.

2. If something negative comes up, look at these things:
> What’s the URL?
> how far down in the search did the problem show up?
> When was it posted?
> Is there a “stats counter” that can tell you how many people have viewed the offending material?
> What kind of site is it on?

3. Determine if it’s worth doing anything. Consider:
> People know that it’s impossible to do business for a long time without any complaints, so DON’T PANIC.
> People understand that some people always post negative comments on review sites, most people ignore one or two low ratings.
> Few people dig deeper than one or two pages into search results.
> If your website gets a lot more traffic than the offending website, do you really want to respond and give the other site more traffic?
> If the website is a “reviews” type website for your industry, use the complaint as an opportunity to repair the relationship or at least show potential customers you tried and take complaints seriously.
> Use your weblog or social media to “bury” the negative comment by having new material appear at the top of any search.

This is not meant to be an exhaustive, or “one size fits all” list. Some defamation requires legal intervention, but most doesn’t. Many businesses and consumers don’t want to get involved with EITHER side when they see an online dispute. So the most important thing to remember is: often more harm is been done by fighting back without a plan than was done by the initial negative comment.

Most people do walk by, and for good reason. You’re not going to change someone who’s path you cross walking down the street. And who cares if some stranger on the street called you a bad name.

But get online and if the same thing happens people feel the need to respond and to point out the error of the other person’s ways. And if it doesn’t work (which it usually doesn’t) people will go back and try time and time again, totally forgetting that old adage, insanity is doing the same thing over and over and expecting a different result.

Having been advising people about online interactions (social and business) since before the www part of the Interwebs became popular, there’s one thing I’ve learned is effective for dealing with difficult people online: IGNORE THEM.

Yes, I do understand, they said something terrible about you, your family, your religion, your politics, your favorite flavor of ice cream. And sure, with the anonymity of some message boards and comment threads it’s tempting to set things right. But will it actually work?

Sometimes someone very calmly posts something you know to be in error, or with which you just disagree and in all innocence you post back. And only then do the invectives fly.

For some reason when someone is sitting at a computer and writing in recognizable words, we don’t have the same “this person is strange, just walk on by” reaction, even if the words indicate that the person is strange. We’ve not been taught since childhood how to identify “strange” (ie, not a good person to interact with) from words as we have been from physical behavior.

But we can recognize acrimonious, argumentative and rude. It’s just when we come across that in the flesh we walk on by. When we come across it online we engage. And that’s exactly the wrong thing to do if you want the person to stop.

Walk on by. Ignore. Hit delete. Get up from the computer and have a snack. Go outside.

I realize the temptation is there to engage these people. But doing so will escalate the discord. It has been known to escalate right off the Internet into your physical space.