my toxic inheritance

[socca]

I have a relative who inherited stock in a closed corporation from her deceased spouse. She’s not too good with technical matters (including finance) and made some spectacular mistakes with her stock that resulted in couple of lawsuits from an aggrieved co-investor. The anxiety associated with these lawsuits lowered her quality of life for a couple of years although she could afford the lawyer fees. Her lawyer drafted an elaborate defense that totally missed obvious and elementary aspects of her case for a cool $120k in fees. Her case ended up being dropped just before going to trial each time. The first case was by a pro se plaintiff. I was impressed how in the U.S. you can walk up and punch someone and be charged with assault and also walk up, slap someone with a lawsuit, cost your victim a small fortune in legal fees, and not be charged with assault. What’s the difference? (BTW: the complaint filed by the pro se plaintiff was a hilarious rambling mess. How can such a document even be allowed to enter the U.S. legal system?)

I’m in the same boat as my relative. I was gifted stock in a private corporation, and it’s driving me crazy. My quality of life would be so much higher if I could find a way to get rid of my stock. What’s the problem? Well, I’m the only technically-trained stockholder who has held a technical / managerial position in a corporation so 95% of the operating responsibility is mine with a right to only a small fraction of the income / assets. Actually, the money is not the issue, it’s just that I don’t respect my co-investors (all of them are relatives; some are spoiled, entitled brats) and don’t want to be in business with them.

There are various options: sell my stock back to the corporation (not going to happen), sell my stock to another stockholder (might happen), gift my stock to other stockholders (might happen), sell my stock to an outsider (don’t have any candidates). I googled looking for an e-bay-like marketplace where I could list my stock for sale, but didn’t find anything. All of the websites I found are for the pre-IPO private stock of companies that have registered with the secondary market platform. Purchasing my stock on an e-bay-like website would be extremely risky for a buyer, so I would expect a huge discount from liquidation value.

It would be so much easier to decide what to do if my stake in the company weren’t so darn valuable. If I gifted my shares (avoiding the restrictions of the stock purchase agreement) my post-gift net worth would still be quite high, but I have a residual nagging greed impulse that I can’t quite shake. I’m working on it, though.

Anyway, thanks for listening to my rant.

 

[folivier]

Don't let your emotions guide your financial decisions.
That's all I got, sorry.

 

[sparky08]

I'm not sure how similar my situation is, maybe a little bit. I worked for (and still have ownership) in a small company. We were bought by a private equity company and I cashed out 80% of my shares.

I rolled over the rest, thinking they'd be valuable at the next sale. But I didn't like the new direction of the company and left about 2 years ago. It wasn't an amicable split.

I still have the shares, but I want to put that part of my life behind me. The company went up for sale this year, but the offers were low. They are going to try again in 18-24 months.

I offered my shares to fellow owners, but the offers were rediculously low. So, I'm just sitting on them until the next sale.

Like I said above, I just want to put this part of my life behind me.

 

[Qs Laptop]

Are you absolutely sure that you can dispose of the stock by selling to an outsider, another shareholder, or back to the corporation? By this I mean have you checked the corporate by-laws?

I'm not understanding this part. Could you elaborate on this statement?

What’s the problem? Well, I’m the only technically-trained stockholder who has held a technical / managerial position in a corporation so 95% of the operating responsibility is mine with a right to only a small fraction of the income / assets.

 

[OldShooter]

WADR I think you need to organize your thinking and your priorities. For example you seem to put a high value on getting rid of the stock under any circumstances. But then you are concerned about getting value for the stock. You say you have the operating responsibility but if you get rid of the stock this is a don't-care. And so on. I think a prioritized list with target dates might help you.

Re selling the stock to a third party, these deals happen from time to time but in our market at least, it is through informal contacts mostly within the CPA and legal communities. So I would try to plug in there if getting value for the stock is an important priority. (Is it?)

Re operating responsibility you appear to have a huge bargaining chip if there is an alternative path where you stay with the company. Tell the others that you want the company to issue enough stock to you that you have majority control, maybe. Or demand a market-rate salary for what you do. (If you go this direction, be sure to get advice and hire some expertise on minority shareholder rights in your state.)

If you don't know where you're going, any road will get you there. Your OP identified a lot of different roads; which will you choose?

 

[Sojourner]

I agree with OldShooter, OP. It's not clear what your priorities are here, so perhaps you could give us more detail. For example, if it were me, a key metric in all this would be the ratio of the value of the private stock to my total NW. If it were something like 3%, I would not spend much time at all worrying about it and would quickly try to dispose of the stock in the easiest way possible. If it were 10%, OTOH, I would prioritize getting good value for it over speed/ease of disposal. And it would be helpful, too, to better understand your day-to-day operating responsibilities and interests with regard to this company. Again, if the stock represents only a tiny fraction of your total NW, why would you spend a lot of time, energy, anxiety, etc. trying to keep the company going? We need more detail here to give you better advice.

 

[Sojourner]

In additions to my comments above, I also wanted to chime in that I too was "stuck" with some private company stock for many years that I wanted to dispose of. The result of an ill-advised investment in a small start-up that I really wanted to believe would do great things... but I should've known better. Mine was a totally passive investment, so my only worry was when (and if) I would ever recoup my investment. After many years of waiting, I decided to push the issue with the owners, but that got me nowhere. Ultimately, I got lucky to be able to sell my shares back to the founders during a round of corporate financing and restructuring. I say "lucky" because they had no obligation to buy my shares, but I think they simply wanted to get me off the books as a tiny, individual investor to whom they didn't want to have to give regular updates anymore. And I think they were quite weary of having to share confidential financial info with me, e.g., salaries and comp for the higher ups which were egregiously high for a company that had repeatedly claimed they couldn't (or wouldn't) buy back my shares.

Now that I think about it, this many be a strategy worth keeping in mind, OP. If you decide you'd rather just dispose of the stock and recoup some marginal value from it, come up with a way to be an "irritant" to the other principal stockholders so they will eventually want to buy you out. Do it legally and ethically, of course, but be super vigilant about demanding to see all quarterly reports, tax filings, and other documents your shares entitle you to see. Also reach out frequently to board members, company officers, and other principals to ask about business strategy and to discuss (at length) any concerns you have about the company's financing, profit/loss picture, etc. Be as much of an irritant as you respectfully and ethically can, and I would guess that, soon enough, you'll get a buy-out offer of some sort.

 

[Route246]

I have a relative who inherited stock in a closed corporation from her deceased spouse. She’s not too good with technical matters (including finance) and made some spectacular mistakes with her stock that resulted in couple of lawsuits from an aggrieved co-investor. The anxiety associated with these lawsuits lowered her quality of life for a couple of years although she could afford the lawyer fees. Her lawyer drafted an elaborate defense that totally missed obvious and elementary aspects of her case for a cool $120k in fees. Her case ended up being dropped just before going to trial each time. The first case was by a pro se plaintiff. I was impressed how in the U.S. you can walk up and punch someone and be charged with assault and also walk up, slap someone with a lawsuit, cost your victim a small fortune in legal fees, and not be charged with assault. What’s the difference? (BTW: the complaint filed by the pro se plaintiff was a hilarious rambling mess. How can such a document even be allowed to enter the U.S. legal system?)

I’m in the same boat as my relative. I was gifted stock in a private corporation, and it’s driving me crazy. My quality of life would be so much higher if I could find a way to get rid of my stock. What’s the problem? Well, I’m the only technically-trained stockholder who has held a technical / managerial position in a corporation so 95% of the operating responsibility is mine with a right to only a small fraction of the income / assets. Actually, the money is not the issue, it’s just that I don’t respect my co-investors (all of them are relatives; some are spoiled, entitled brats) and don’t want to be in business with them.

There are various options: sell my stock back to the corporation (not going to happen), sell my stock to another stockholder (might happen), gift my stock to other stockholders (might happen), sell my stock to an outsider (don’t have any candidates). I googled looking for an e-bay-like marketplace where I could list my stock for sale, but didn’t find anything. All of the websites I found are for the pre-IPO private stock of companies that have registered with the secondary market platform. Purchasing my stock on an e-bay-like website would be extremely risky for a buyer, so I would expect a huge discount from liquidation value.

It would be so much easier to decide what to do if my stake in the company weren’t so darn valuable. If I gifted my shares (avoiding the restrictions of the stock purchase agreement) my post-gift net worth would still be quite high, but I have a residual nagging greed impulse that I can’t quite shake. I’m working on it, though.

Anyway, thanks for listening to my rant.

It seems your time is worth more than the value of your stock. What is to stop you from advising to sell the corporation and cash everyone out? You have 95% of the operating responsibility (not sure if that means control) so why not draft a plan to sell/liquidate the firm? Worst case, it will get their attention.

 

[CRLLS]

I too, am a bit confused. You say that you don't want to be in business with your co-investors anymore and want to sell, or otherwise give up being a stockholder. You don't say anything about what happens afterwards. If you don't leave, how would selling stock help that issue? What would happen if you quit, moved on or retired and still held the stock? Yeah, maybe the value of your stock would fall. But you would be out of the dilemma that you seem to be in.

 

[Texas Proud]

I am with all the others who do not understand... if YOU are the only one keeping the doors open and income flowing then if YOU are not going to be doing it after you sell then your shares are worthless (or close to it)...

I have 2% in a small company but have no working involvement with it (heck, I was laid off... thank you BTW)... I just do nothing with it except for when they pay dividends I get a check... I kinda stopped talking to the main shareholder as he was going to do what he wanted to do no matter what others said... so I decided to not waste my time...

 

[Koolau]

I was impressed how in the U.S. you can walk up and punch someone and be charged with assault and also walk up, slap someone with a lawsuit, cost your victim a small fortune in legal fees, and not be charged with assault. What’s the difference? (BTW: the complaint filed by the pro se plaintiff was a hilarious rambling mess. How can such a document even be allowed to enter the U.S. legal system?)

Anyway, thanks for listening to my rant.

"Loser Pays" is the key to end this. That would need to include the cases where the plaintiff DROPS the case.

 

[MarieIG]

Why don't you just step away from the management position and tell them to hire someone else to do the work and send you your share of the income?

I'm not sure why you would have to gift or sell your shares.

 

[Chuckanut]

This is probably to late for some, but you can disclaim an inheritance that may be more trouble than it’s worth.

How to Disclaim an Inheritance (And Why You Would) - SmartAsset | SmartAsset

You can refuse either an entire inheritance or part of one by disclaiming it. Here's how the process works, and why someone would want to do it.

smartasset.com

First, it’s important to understand what disclaiming an inheritance means. In a nutshell, it means you’re refusing any assets that you stand to inherit under the terms of someone’s will, a trust or, in the case of a person who dies intestate, the inheritance laws of your state. You can also disclaim an inheritance if you’re the named beneficiary of a financial account or instrument, such as an individual retirement account (IRA), 401(k) or life insurance policy.

Disclaiming means that you give up your right to receive the inheritance. If you choose to do so, whatever assets you were meant to receive would be passed along to the next beneficiary in line.

 

[socca]

Thanks for the feedback, everyone. Additional info:
• running a successful business means solving an endless stream of technical problems (financial, legal, IT, etc.) I'm now the only person capable of doing this. The company isn't sufficiently profitable to outsource management to a hired CEO. If I were to suddenly stop all work and become a purely passive investor the company would go into a slow death spiral. Eventually, the court would step in and sell off the assets to pay debts, etc. (BTW: because of the nature of our biz marketing and sales aren't much of an issue).
• the stock purchase agreement (drafted decades ago) doesn't explicitly forbid a stockholder from selling their stock to other than the company or another stockholder. However, the company and other stockholders have first and second refusal.
• the idea of selling my stock back to the company at a price the company can afford is interesting. The stock purchase agreement says the sale price must be at appraised value, but this is probably negotiable. I could offer to sell for far less. Unfortunately, an installment sale (the only thing the company can afford) would mean that I would have to keep the company going throughout the sale period.
• it's true that I'm schizo on this topic. When I'm in "maximize quality of life" mode I just want to get rid of my stock at any price (or none). When I'm in "maximize assets" mode, I like to include the probable appraised value in my net worth although it's just monopoly money for me at this point.
• I'm definitely at a place in life where time is more valuable than money. The problem is that after years of believing the reverse I'm having trouble acting on this belief.
• I posted this in part because I thought that there might be an entrepreneur out there who might leap on this new opportunity to create a marketplace for extreme-risk private company stock like mine. If I found an external buyer it's not clear whether the stockholders or directors could kill the sale by refusing to transfer my stock (my relative's lawsuits were related to this issue).

 

[MarieIG]

My quality of life would be so much higher if I could find a way to get rid of my stock. What’s the problem? Well, I’m the only technically-trained stockholder who has held a technical / managerial position in a corporation so 95% of the operating responsibility is mine with a right to only a small fraction of the income / assets. Actually, the money is not the issue, it’s just that I don’t respect my co-investors (all of them are relatives; some are spoiled, entitled brats) and don’t want to be in business with them.

. . .

It would be so much easier to decide what to do if my stake in the company weren’t so darn valuable. If I gifted my shares (avoiding the restrictions of the stock purchase agreement) my post-gift net worth would still be quite high, but I have a residual nagging greed impulse that I can’t quite shake. I’m working on it, though.

. . .

But if the corporation has insufficient funds to hire someone to do what you are doing - and would go into a death spiral without you - how valuable is it - without you at the helm?

I am not / nor have I ever been an entrepreneur, but before buying a position in a small corporation, I would want to investigate not only the "books" income - outflow, expenses - but know who did what - and how the business was run - and I think your "value" to the corporation would be revealed pretty quickly. It is not unusual that a lot of the value of a small business is wrapped up in the skills, work and contacts of one person.

 

[Qs Laptop]

Thanks for the post clarifying some issues.

I'm a business owner that is in the process of selling my business I started over 35 years ago. I've run across some of these shareholder/stock ownership issues in the past year and a half. I've gone in a different direction than you--I've been buying out shareholders. As such, I might be able to give you some advice. But I'd need to know a few things:

You said, "95% of the operating responsibility is mine with a right to only a small fraction of the income / assets."

What is your title at the company?
What percentage of shares in the company do you own? What is the percentage now and what was it before you inherited?
Are you on the board of directors?
Are you getting paid for your IT, legal, and financial work? If so (and I certainly hope you are) are you happy with the amount? Who decides your salary?

-and-

"running a successful business means solving an endless stream of technical problems (financial, legal, IT, etc.) I'm now the only person capable of doing this."

Sounds to me like you've got some leverage.

Are you certain you are irreplaceable? In other words, if you were to quit, what would the other shareholders do?

(If you'd rather take this to private messaging, I can understand.)

 

[Texas Proud]

I might have missed it... are you being PAID a salary for the work you do

The company I own a small piece in pays the main shareholder a base salary (probably half of what he would get elsewhere) and a 20% bonus on net profits each year... he then gets his share of dividends of the company...

If you are not getting a good salary I would make sure that I did first... if 'they' do not want to pay then I would say goodbye and let the death spiral begin... cashing out as much as I could...

 

[Route246]

Thanks for the feedback, everyone. Additional info:
• running a successful business means solving an endless stream of technical problems (financial, legal, IT, etc.) I'm now the only person capable of doing this. The company isn't sufficiently profitable to outsource management to a hired CEO. If I were to suddenly stop all work and become a purely passive investor the company would go into a slow death spiral. Eventually, the court would step in and sell off the assets to pay debts, etc. (BTW: because of the nature of our biz marketing and sales aren't much of an issue).
• the stock purchase agreement (drafted decades ago) doesn't explicitly forbid a stockholder from selling their stock to other than the company or another stockholder. However, the company and other stockholders have first and second refusal.
• the idea of selling my stock back to the company at a price the company can afford is interesting. The stock purchase agreement says the sale price must be at appraised value, but this is probably negotiable. I could offer to sell for far less. Unfortunately, an installment sale (the only thing the company can afford) would mean that I would have to keep the company going throughout the sale period.
• it's true that I'm schizo on this topic. When I'm in "maximize quality of life" mode I just want to get rid of my stock at any price (or none). When I'm in "maximize assets" mode, I like to include the probable appraised value in my net worth although it's just monopoly money for me at this point.
• I'm definitely at a place in life where time is more valuable than money. The problem is that after years of believing the reverse I'm having trouble acting on this belief.
• I posted this in part because I thought that there might be an entrepreneur out there who might leap on this new opportunity to create a marketplace for extreme-risk private company stock like mine. If I found an external buyer it's not clear whether the stockholders or directors could kill the sale by refusing to transfer my stock (my relative's lawsuits were related to this issue).

Seems like this is a family business and you feel some responsibility, perhaps symbolic responsibility to not be the one who shuts it down.

There also appears to be no succession planning. This may be an opportunity for you to craft a statement of condition and make it clear you are at a point in life where you no longer have the energy to act as the defacto pilot in command. (do not mention you don't have the time as that can be construed as self-serving).

The important thing is for you to exit this arrangement while causing minimal pain to shareholders while relieving yourself of managerial and fiduciary responsibility.

 

[socca]

But if the corporation has insufficient funds to hire someone to do what you are doing - and would go into a death spiral without you - how valuable is it - without you at the helm? ...

The company owns a large amount of valuable land. I like to say that the company is valuable despite the management rather than because of it.

 

[socca]

... Are you certain you are irreplaceable? In other words, if you were to quit, what would the other shareholders do? ...

They would continue to do what they do now - nothing. Therein lies my entitlement complaint: when folks are used to having everything done for them it's a real problem when their service providers quit, retire, or die and they are incapable of doing the work themselves.

 

[socca]

.. If you are not getting a good salary I would make sure that I did first... if 'they' do not want to pay then I would say goodbye and let the death spiral begin... cashing out as much as I could...

It's not a money issue. It's a time issue. Too much aggravation and 'headspace' occupied by a never-ending stream of problems. Another problem: none of my fellow stockholders have any professional business experience. Their behavior is sometimes shocking. I recently realized that when I graduated college and joined my first mega-corp my education was actually continuing - how to interact with co-workers in a professional manner. I wonder about all of the work-from-home millennials - how is their continuing education going?

 

[socca]

Seems like this is a family business and you feel some responsibility, perhaps symbolic responsibility to not be the one who shuts it down.

There also appears to be no succession planning. This may be an opportunity for you to craft a statement of condition and make it clear you are at a point in life where you no longer have the energy to act as the defacto pilot in command. (do not mention you don't have the time as that can be construed as self-serving).

The important thing is for you to exit this arrangement while causing minimal pain to shareholders while relieving yourself of managerial and fiduciary responsibility.

Correct on all three counts!

BTW: I'd like to have a smooth operator like Susie Glass (actress Kaya Scodelario) from the Netflix series The Gentlemen come in and take over the family biz. She might be able to expand our products into interesting new areas.

 

[CardsFan]

I know nothing about this kind of company ownership, but if the value of the land is "the" big thing, why not announce you are "retiring" and the best thing to do would be to sell the company, and/or divest of all property. Point out to them how much they will get. If they are as greedy and uninformed as I have interpreted, they might jump at the big payday.

Just a thought.

 

[JBTX]

This is pretty easy if you step back from it.

If you hired somebody to replace you, profit would be zero. The true value of the company is zero. It only seems like it has profit because you are doing work for free.

Right now, the profit is essentially the management salary, but then you give way most of your salary to the other shareholders.
The company is worth zero, and you are giving away most of your salary.

Announce you are going to leave the business in 90 days. You will accept the highest bidder for your share, or the company can buy back your share. The offer has to be cash, or payable over a very short period of time. Anything you get is better than nothing because in reality the company is worth zero.

If you wanted to work a job, you would find one where you keep all of your salary, not give it away to fellow shareholders.

 

[Texas Proud]

JBTX, that is why I was asking if he got a salary... you put it more bluntly, but it is the direction I was going...

It also seems like he does not want to do the work... so any reasonable salary is a no go....

I still think if you cannot sell the shares then just let it liquidate and take whatever if your share...