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I'm a software developer who developed a SAAS (software as a service) system for a startup company. I can't provide any additional details into the company since it's under an NDA but they shouldn't be super relevant to my question. I've been working for awhile for pennies on the dollar with the promise of that scaling as we earn more clients. Currently, we retain the rights to half of the product since we were willing to work for so cheap. It's coming time now where we relinquish our ownership of the product in exchange for a small amount of equity.

My question is, what can we do that would prevent the owner of the company from being able to create a new company and purchase their own company for $1 giving us practically nothing?

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If I understand your question correctly:

  1. at present you own 50% of the IP in some software and a Company owned 100% by someone else owns the other 50%.
  2. in the near future, you will sell your 50% ownership in the software to the company for an X% share of the company (where X% < 50%) .
  3. you are concerned that the majority shareholder will form a new company and buy the business of the existing company (including the software IP asset) for a nominal, non-commercial amount, thus ripping you off.

If this is the situation:

  1. what were you thinking? Never, never, never go into a partnership with someone you don't trust. Of course, if you do trust them then there is no problem, is there.
  2. They can't do this. The directors of a company are required to act in the interests of the shareholders as a whole. A scam like this is clearly not in the interest of the shareholders as a whole (and may even be fraud) and you could sue the directors personally.
  • There is no problem, I'm simply trying to cover all bases here and work multiple steps ahead. As you probably know, there are a lot of startups looking for "work for equity" type deals. Covering this would help protect us going forward should we decide to try deals like this (though probably wont). So if they're required to act in the interests of all shareholders, how do directors of publicly traded companies make decisions? I'm sure there are a handful of shareholders that could argue any given decision doesn't act in their interest. – user13603 Sep 20 '17 at 2:06
  • "all the shareholders" should be "the shareholders as a whole": I'll change it. – Dale M Sep 20 '17 at 2:12
  • Just so I understand the difference, say there are 6 shareholders and 4 of them are promised additional equity in the new company that purchases the old one. Would this still fall under that umbrella of protection for us? I believe I read something along the lines of one's "fiduciary duty"; Is this what you were referring to? – user13603 Sep 20 '17 at 2:36
  • "shareholders as a whole"="the company" - the company owns the asset - is it in the company's interest to sell that asset for less than fair value? Directors are obliged to act only in the interests of the company (shareholders as a whole) – Dale M Sep 20 '17 at 2:39
  • @jeffk if only four shareholders are getting equity in the new company then they are getting that equity for some reason other than their being shareholders. Any deal that affects shareholders must affect them all in proportion to the number of shares they hold. – phoog Sep 20 '17 at 4:20

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