Relationship between shares and power

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Relationship between shares and power

We just start a company and there’s a guy who wants to join. We need his help but
we are afraid he will take over our company after time. He asks for 2 margin
shares and executive power. We would want to know how can we limit or restrict
his power to be overwhelmed? We don’t want our decision to be banned because of
one man’s determination. We are the directors of the company and with more shares
than him. Do we have more power than he does? Please advise. Thank you.

Asked on July 10, 2018 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

"Shares" only applies to corporations, not LLCs or partnerships. The impact of how many shares someone has depends on how many shares there are overall. To oversimply:
1) In either an LLC or corporation, power is proportionate to ownership: a majority of the ownership interest can control the company. Say you have 3 owners, all of whom are equal 1/3 owners: any 2 can overrule the third. Say instead you have 3 owners, but one owns 51% of the company, 1 owns 25%, and one 24%: the 51% owner is the majority owner and  can make all the decisions; he has more power than the other two combined.
2) People can be appointed to roles or positions by the majority owners which have nothing to do with their ownership %. For example, say you have two 40% owners and a 20% owner: the 40% owners can make the 20% owner the president, so the highest level employee with all executive power, and the 20% owner/president will have that power UNTIL the two 40% owners decide to demote him, fire him (he'll still be an owner, but won't be employed or have any actual authority), or simply limit his power in some way. The two 40% owners can do that at any time.
Decide what you want--who owns how much? who has what titles or roles in the company? etc. The go to an attorney to help you structure the business.


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