united-states, stock-options, stockThis is a secondary question to “https://startups.stackexchange.com/questions/11398/how-unusual-is-it-to-not-be-told-how-many-shares-of-a-company-are-outstanding”. As I said there, I work for a startup which is self-funded by a wealthy founder. For a few years before we received external investment, we presumably received injections of cash from the founder to keep the company running. During this time, the fair market value of our shares remained at a few cents. Should I assume that each time the founder injected cash into the company, the equivalent number of shares (new investment / fair market value) was created, thus diluting all other shareholders? Or put another way, can I calculate a rough upper bound on the number of shares the founder owns by taking all our spending prior to external investment and dividing by the fair market value of the shares?
I realize that as a shareholder, the short answer is to just ask the company to open their books. But the company is extremely secretive and I imagine I’d have to file a lawsuit to get the information, which would put me in a tough position as a current employee.
Unless you know exactly how the founder invested his money in the company, you may never have an answer to your question.
It’s possible he didn’t take additional shares in the company, but rather he might have given the money to the company in the form of a loan, to be repaid with (or without) interest at some future point in time.
He may have issued different classes of shares for his additional investment too so that he has preferred shareholder status in the event the company doesn’t survive as a going concern. With preferred shares, he’d be the first in line to receive repayment if there’s any money left after liquidation and settlement of the company’s outstanding debts. This, of course, assumes there is anything left in the event of a failure, which there usually isn’t.
All things being what they are, why not just ask him to explain the structure and ownership of the company to everyone? I can’t imagine you having to file a lawsuit to get what you’re asking for, and if there’s retaliation because you dared to ask then that’s potentially grounds for another suit.
As a shareholder, you have rights to know the company’s financial condition and what the distribution of ownership is.
To your question about how far down you can be diluted, there’s no limit short of zero. In other words, you can’t lose the shares you have, but so many could be issued that your percentage ownership could have a decimal place followed by more than a few zeroes before getting to a number value.
My suggestion would be to contact the secretary of state’s office in the state where the company was formed and ask them what means you have for learning what it is you want to know. You can keep your questions open and general without having to specifically identify the company so it can’t become an issue, but the state will certainly tell you what you can and can’t do to find out what you want to know.
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