I am a shareholder in a closely-held, family-owned corporation. I did not invest in the company; I inherited with my sister when our Father died in 1998. Due to our management disagreements, we hired an attorney to take over managing the company and settle 50/50 shareholder disputes. Shortly after this attorney was hired though, I discovered he was using company funds as his own personal piggy bank. Not only did this money belong to the company, but we derived our income from taxpayers and government expenditures as a student transportation service. So, I attempted to terminate the attorney under unilateral provisions in our executive agreements only to then discover that my sister issued him shares behind my back. Together, they became the majority and I was squeezed into a minority position that would take the next 15 years to litigate until now. With this new position of power, the attorney I brought into my family’s company, then, decidedly stated to me that he would “crush me” for telling him whether he could access company funds personally.
HOW COULD THIS OCCUR
That moment was the beginning of the end of my Father's legacy that he built for his family. In 2006, this attorney began a brilliant scheme to freeze-me out of the company completely by using the IRS. He assigned me income under our S-Corp status while withholding the appropriate shareholder distributions so that I could not pay my income tax in full. This continued through 2008 when, finally, I filed a direct lawsuit against him (not my sister and not a derivative claim on behalf of the company so that I could try to isolate the issues and maintain hope for our family and my Father’s legacy). That same year, my income tax bill rose to such a high level that I began to drown in the debt and, eventually, the IRS seized everything. I am a single mother of four as well, but was determined to keep my children insulated from this attorney’s wrath. However, I quickly learned the IRS is not so compassionate to S-Corp/closely-held company shareholders when assigned income not actually received. It did not matter that I never had check writing authority at the company, never signed a corporate return, and did not control the assignment of the income. It only mattered that a tax was due on the income that was assigned on paper, whether or not it could devastate a shareholder’s life for not actually receiving the income.
DEVASTATION LEFT IN THE WAKE
And, that is exactly what happened to me. My life spiraled into ruins. I began to lose every court battle even though this attorney was literally stealing income. He had control of the business and the use of company funds to pay legal fees. To exemplify the level of greed, the company was obligated to support our mother for the duration of her life, however during this time, this attorney terminated our mother’s monthly retirement income with my sister’s blessing. Our Mother now lives on social security even though our Father’s hard work set up his family to never be a societal drain.
My immediate family truly has been devastated by this greed, and eventually in 2011, I was left with little choice but to file to dissolve the company; this was and is the only remedy available to oppressed minority shareholders. The New York State Business Corporation Law does not provide any other method for a minority shareholder to escape the financial and economic devastation such freeze-out strategies can cause. In my case, even with the available remedy, the majority refused to settle on a fair market value for my shares and forced upon me the expense of continuing litigation. I had no choice but to pursue the dissolution, but it was with the expectation that the judicial intervention would be my saving grace. However, the Law in New York tilts in favor of the majority shareholders by allowing them the opportunity to purchase the minority’s shares. In my case, this further controlled the outcome of my exit from the company, including delaying my ability to collect any money, all while still being assigned income.
In the end, I do not know if I will ever recoup from the legacy my Father left behind, financially or emotionally. The efforts of two generations passed to a third generation only to have greed incinerate the meaning of the word ‘family’. Notwithstanding family, my legal fees climbed to well in excess of half a million dollars.
PLEASE CONTRIBUTE TO OUR FAMILY’S LEGAL FUND
I know that there are individuals in this country facing similar plights as mine in these types of small lucrative businesses. Small business is a foundation of this country’s economy. Yet, in the world of small business, majority shareholders are granted licenses to raid corporate funds and squeeze minority shareholders into financial ruin because laws mainly support shareholders in publicly traded companies. The legal remedy that is actually set up to protect minority shareholders actually provides majority shareholders with all the options and, thus, additional control. Minority shareholders, through their only remedy to seek relief, remain at the majority’s mercy.
Please help my family and my children by donating to this legal fee fund. In an effort to encourage and procure the level of funding requested, for every $20.00 donated, $1.00 shall be set aside and donated to research for early-onset Alzheimer’s dementia. This disease ultimately took my Father’s life at the early age of 58. With such a young onset of the disease, my Father’s succession and estate plans were never finalized. Much of the adversity faced by our family today, I believe, is directly attributable to this devastating disease and its grasp on my Father’s mind before he ever lived a day into the second half of his life.