It is not uncommon for a person to offer her services in exchange for an ownership stake in a company. But, if she does, is she entitled to receive wages for her services, too? Consider the following…
A recent case illustrates the peril of not fully understanding your status in a company when you agree to provide services in exchange for an ownership stake in a company. The plaintiff contacted two other individuals to discuss starting a company that would deliver home-cooked meals. The parties agreed that, in exchange for stock in the new company, two of the individuals would provide start-up capital and the plaintiff would perform kitchen and administrative duties. The agreement was not memorialized, but the plaintiff referred to the other individuals as his “partners” in written communications and he did receive shares of stock in the company.
Unfortunately, the business failed within several months and the individuals who provided the start-up capital sought to dissolve the company. The plaintiff objected to the dissolution and filed suit, claiming he was owed wages for the work he performed. Although a stockholder may receive wages for his services, the trial court quickly dismissed the suit because, despite any understanding the plaintiff may have had, the evidence clearly demonstrated that the plaintiff agreed to receive stock in lieu of wages. On appeal, the appellate court agreed with the trial court’s findings and, accordingly, affirmed the decision.
The case illustrates the importance of understanding the nuances of structuring company ownership and having a written agreement that clearly and accurately reflects the parties’ intentions. Please feel free to contact me for more information about structuring business ownership or the case, Valdes v. Clean Eats Meal Prep, Inc.
PLEASE NOTE: This blog is merely for the general interest of the reader. It is not legal advice or opinion and it does not create an attorney-client relationship. Please call me at 973-921-0600 if you’d like to have a free initial telephone consultation or learn more about me or my practice. Thank you.