Relationship between shares and power

UPDATED: Oct 1, 2022

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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


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 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.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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