When you initially file your certificate of incorporation and receive your common stock certificate, there is a certain joy associated with knowing that you may be on the ground floor of the next big thing. You want to make sure that you protect your position in your company as it grows as we have seen time and time again, the strategic ousting of the founding members of a company through board room theatrics. The latest person involved a fight with her board of directors – Elaine Wynn. Wynn Resorts Ltd. co-founder Elaine Wynn has launched a bid to retain a seat on the casino operator’s board, which is trying to oust her. Ms. Wynn is yet another individual struggling to keep control of a business that she was instrumental in creating. The board is refusing to submit her name for another three-year term. The board has concerns about Ms. Wynn’s ability to serve, due to “actual or potential conflicts of interest” as well as her “lack of independence under Nasdaq listing standards and resulting inability to serve on key board committees.” The board also cited a lawsuit she filed against Mr. Wynn. Ms. Wynn is seeking to remove restrictions on voting and selling her shares that are part of a shareholder agreement.
The Shareholder Agreement
When creating a Corporation, the terms of the Shareholder Agreement should always be clear regarding the voting rights of the board of directors. The Agreement should be customized to your business needs while also taking into consideration your vision for the company as it grows and distributes shares to investors. Often time, founders of the Corporation are immersed in the thought of expanding their business and fail to consider the ramifications involved when their shares are diluted by a potential liquid investor.
Whenever you are considering distributing shares of your company, please make sure to read your Shareholder Agreement or consider revising the terms to suit that specific transaction. For example, your pre-emption rights may not be specific enough or you simply may not have included this language in the constitutional documents of the Corporation that preceded this novel transaction. By revising the terms of your agreement, you are taking the proper steps to assure that you will not be involved in a Game of Thrones scenario with your board of directors.