Basically, owning 8%, 20% or 49% of the stock in a small (closely held) company is of LITTLE value or importance UNTIL you SELL the stock or it changes hands at death.

Let me insert an important question…..try it on personally, today! If your BOSS were to die or become disabled (unable to work) TODAY….how would it affect your status in life? Your family? Could the business survive without him? This is very important if you are in a small firm and the boss holds the key to survival.

As an aside…many stocks are referred to as “phantom” stock. Usually given to employees as a means to keep them happy as “owners” of the business. In reality, the ownership control remains with the guys who OWN 51% plus of the company stock portfolio.

The “boss” (90% stockowner) spent his time running around the country, going fishing and taking care of his personal needs and wants. Every once in a while he would call back and ask the GM (general mgr.) if “they” had any money??

Then he would say, “put $1,000 in my account!” This was at a time when minimum wage was about 50 cents an hour. Owning 90% of the company was a powerful position and he could make any request and get it done…as long as the money was available.

Verbal Contracts Are Worthless

Our BOSS was really a nice guy. Honest! A real entrepreneur. He supposedly was a very generous person, too. He made some important VERBAL commitments to his General Manager/Vice President. The BOSS was considerably older than the GM/VP.

I’ll FIX everything so YOU (GM/VP) will OWN the business when I’m gone. A loyal employee…the GM/VP ran the firm for 45 years (a career lifetime!). The GM/VP would own the business when the boss kicked the bucket (died). There would not be a problem with the boss’ heirs (a son and daughter).

Do You See The Problem??

The boss (maybe!?) probably did have GOOD INTENTIONS! The boss did die and the GM/VP ended up with NOTHING more than his original 8% of the stock.