Maybe you have had the same experience. A new client comes to you with a story. She had significant disposable funds, so she did what everyone does—she invested in the “next big thing.” She was so excited that she did not even consult with a lawyer because she was afraid to lose this “once in a lifetime opportunity.” The client invested $500,000 for what she was told was initially a 20 percent interest in the venture, which would increase to 50 percent after two years pursuant to an oral agreement. She was also told she would begin making money immediately. Not surprisingly, two years come and go and she has not received a single distribution, and all of her requests for relevant information regarding the company’s finances have been ignored. When the venture began, optimism was through the roof and dreams of a pain-free retirement danced in her head. But, alas, things did not turn out to be what the client had hoped. So, you first determine what form the business was in, i.e., whether she invested in a business corporation or a Limited Liability Company. Then you look for the underlying agreements and you are told “I don’t have any” and off you go.
The fact is, minority shareholders/owners have very little (or potentially no) control over when and how much money they will receive in distributions based on their investment (if any). So, after gently admonishing your client that she should have come to you or your corporate group before she made such an investment, you ascertain what legally supportable angle may be available to get your client out.
