Nasir and Matt discuss the Walmart that claimed its employees were home on Easter but were really working in the store. They also answer the question, "I gave a small ownership interest to a friend. Now he refuses to do any voting in which a shareholder vote is required. I have the majority so do I need to worry about him?"
NASIR: Welcome to Legally Sound Smart Business.
This is Nasir Pasha.
MATT: And this is Matt Staub.
NASIR: And this is our podcast where we cover business in the news with our legal twist and also answer some of your business legal questions that you, the audience and listener, can submit to our podcast and we can answer.
By the way, are listeners audiences, too? Or does an audience have to be in a studio?
MATT: I would think audience is anyone who’s any of the five senses – listening, visually, smelling.
NASIR: So, if they can just smell us, they could be an audience?
MATT: Yeah, audience is the umbrella and you have everything underneath.
NASIR: According to Meriam Webster, a group of people who gather together to listen to something.
NASIR: Well, I’m sure a lot of people have podcast parties where they gather together and listen to our podcast. I guess that counts.
MATT: Yeah, that’s pretty popular with ours, I know that I get those comments all the time.
NASIR: Yeah. Well, to all the audience out there, submit your business legal questions to email@example.com and that’s our show!
MATT: We look up the definition of one word every week and we tell people what it is and that’s it.
NASIR: Word of the day – audience. Repeat after me – audience.
MATT: Well, let’s get into the story that we have for today. This one deals with Walmart.
By the time this episode comes out, it will be a week past, but it has to do with the Easter Sunday on this Walmart in Maine.
This Walmart in Auburn, Maine, was closed on Easter Sunday. Apparently, once you get to a certain size, the laws in Maine are that you have to be closed. But the thing is, they posted a sign on their store saying that they’re going to be closed so their employees could enjoy the Easter Sunday with their families.
They were closed, yes, but the problem is that some of the employees were working.
Now, there was a question of whether these people came in voluntarily or whether they were required to come in or kind of maybe in the middle – they weren’t required to come in. It’s kind of like when your wife tells you to do something; you might not necessarily be required to do it but, you know, if you don’t, then it’s going to be pretty difficult for you down the road. Maybe it was a situation like that.
NASIR: Well, I think it’s weird that they said that they let them off to be with their families but, if the reason they did that was because it’s a state law, I mean, I don’t think they did that in any other state – well, at least in the other state that doesn’t require it to be closed.
MATT: Right, and I didn’t even know that that was the case. You know, in California, that’s not how the laws are but I guess, in Maine, that’s the case. I’ve actually been to Maine before. I don’t know if I’ve been to Auburn, Maine. I can’t remember, actually, any of the cities I’ve been to. It was a long time ago but it’s pretty spread out in terms of the cities and the population. So, maybe that’s the case on why this is.
But getting back into the actual story here, I kind of see a problem with putting something on your store, saying, “Our employees are enjoying their time with their families on Easter Sunday,” but also having people inside, employees, inside working – whether they want to be there voluntarily or not.
NASIR: Yeah, that’s true. It’s even more ironic that, on one hand, they’re saying they did this because of the families yet they’re required. At the same time, there are people working in there. But I can see people wanting to work. I think they only got regular pay though. But, every holiday, people want as many hours as possible, especially when you’re paying minimum wage or a low-wage job, you’re trying to get as many hours as you can. If you have the option to work – even if it’s the same regular pay – then why not? Easter Sunday is not celebrated by all necessarily and may not necessarily require to be at home the entire time. So, I think there was only, like, twenty employees. I don’t know how many employees at any given time are working inside. But the store was closed, though, right? They were just maybe doing inventory or something?
MATT: Yeah, it was probably just moving around the inventory, getting the shelves stocked. But, yeah, the strange thing too, they didn’t even get time and half pay. Typically, on a holiday, you would get time and a half pay. But I guess that’s not the case, especially if they came in voluntarily. It’s almost like this Walmart is taking advantage of the people that wanted to volunteer and come in.
Obviously, if they didn’t volunteer to come in and they were forced to, especially under Maine law, it’s going to be a problem. I guess, if this is what you want to do, then you can do it but it’s not going to be that fun.
NASIR: Yeah. Well, I bet you it wasn’t a normal day at work. It almost reminds of a school day where maybe a substitute comes in and everything is kind of different that day and – I don’t know – it makes it more fun, I guess.
MATT: All right, let’s get into our question of the day.
“I gave a small ownership interest to a friend. Now, he refuses to do any voting in which a shareholder vote is required. I have the majority. Do I need to worry about him?”
This comes from a car shop in Houston.
NASIR: That’s interesting. Basically, you have someone that’s part of your business that doesn’t want to do anything. B the way, it’s not like voting in your local election where you have to drive somewhere and make sure you’re registered to vote. I mean, this is a very informal process when it comes to – especially in your case – when you have two shareholders – one being a majority and one a minority.
I think the answer is pretty straightforward. Well, maybe not because you say you have a majority. It depends how much a majority you have because, in any vote, there is a quorum required. Usually, in your bylaws – that hopefully was setup by an attorney – usually, the quorum is for a majority of the shareholders to be present. And so, assuming you gave all the notices that are required for any kind of shareholder vote, since you own the majority, then in theory, you don’t have to have them vote to actually conduct a vote itself.
The question is what if the quorum is more than just a majority? What if it’s two-thirds and that person has 40 percent of your business?
MATT: Right – or even worse. What if it’s unanimous? They have to have 100 percent of the shareholders. Then you’re actually going to run into some trouble. I mean, based on how this question is worded, I can’t see the friend having a big piece. I would expect probably 5 percent at the most, I would think.
But I guess I would also question why you even gave the friend ownership interest in the first place. Hopefully they gave you some money or something. I don’t know why else you would just go on the street and start handing out equity in your company to people.
NASIR: Another thing is maybe it’s time to get this person out of your business. If you can arrange a buyback of his shares, or maybe there’s already a provision in there that allows you the option to buy back the shares if the shareholder is not being cooperative and so forth, but that’s an option.
To me, I think there’s a bigger problem. Like you mentioned, what if it’s unanimous? What if three-fourths is the quorum and they have 26 percent? Then, it’s pretty much the same thing if you have a deadlock between a 50-50 partner. The only way to resolve it without the parties themselves agreeing to it is going into litigation. Sometimes, when it’s a small business, that’s not going to make sense because the cost of litigation is prohibitive so, a lot of times, these businesses just kind of go defunct and just dissolve. Sometimes, that happens where you may have a dying business but then someone wants to acquire it and, for whatever reason, some shareholders are trying to block it and because, for whatever reason, it may not be worth to litigate it then the business just dies, unfortunately.
MATT: Do you think he needs to be worried about the hostile minority shareholder?
NASIR: Every minority shareholder has certain minority rights, so to speak. But the more important ones are making sure that they’re given adequate notice to vote. It usually has to do with voting, frankly, when it comes to minority rights and basically not doing certain things with the assets without properly going through the procedures. It’s more procedural but, if that shareholder is not participating, it’s similar to, look, a lot of owned stock and we don’t necessarily show up to the shareholders’ meeting and put our votes in. Now, are we going to, because we’re not participating in that, are we going to hold up a public company to that? No. Same thing if you have this small business for which a small ownership is given to a minority shareholder. There’s only so much that that person can do to throw a wrench in the wheel. Or quit your business.
MATT: I think the takeaway here is just, if you want to question anything, it might be the decision-making to give this person a small interest. But we don’t know all the facts; maybe, at the time, it made sense and things had changed or what-have-you. But that’s your answer.
NASIR: Yeah. Well, this person did mention, “I gave a small ownership interest to a friend.” It wasn’t like a person loaned me money or a friend that loaned me money or a friend that invested or a friend that contributed to my business. It just seems like a friend. Maybe you’re right; maybe there’s something there that should not have been given. I don’t know.
MATT: Yeah, and you raise a good point. Why make friends in the first place? You could just be by yourself.
NASIR: That’s exactly my point. It’s amazing how you can just translate what I’m saying so clearly.
MATT: All right. Well, I think that’s it for this episode.
NASIR: All right. Well, thank you for joining us!
Again, this is Legally Sound Smart Business.
Have a good day
MATT: And keep it sound and keep it smart!