shareholder protection

RichD · 2012-09-07T02:26:26+00:00

Common situation: investors fund a new business start, receive minority stake. Company founder keeps control, and chief executive position. Now, imagine the firm makes a steady, substantial operating profit, after depreciation, etc. Eventually, investors want to take cash out, one way or another, most likely through dividends. But suppose the president simply pays himself an exorbitant salary, soaking up those profits. And year after year, he says ,"Sorry, we broke even, again." He gets it all, they get squat. Do they have any recourse? I've never heard of such a case, but I've wondered about this for a long time.

Sep 07, 2012 22 Replies

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Fredxx 13 years ago

A consequence is that if the OP doesn't take up a new share issue, his holding would be further diluted.

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Zerkon 13 years ago

If publically traded the president could not keep this private. If the investors got pissed they would sell off, no one else would buy until the president got the can [one can or the other].

If the president dorked with the books to hid this then we got crime so he would be forced to leave and run for political office for the Republican Tea Party(tm).

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Fredxx 13 years ago

But that's not the case in hand. This is where the president owns a controlling share so his tenure is assured, and doesn't care if the share value becomes negligible. In fact it would be to his advantage.

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