San Francisco Ownership and Control Attorneys

Disputes among partners, LLC members, and shareholders are routine and common. Ideally, you and other stakeholders in your business will be able to communicate and efficiently resolve the matter. A “freeze-out” occurs when a co-owner is shut out of making decisions or exercising their stake in the company. 

In some cases, a freeze-out will be obvious and result in immediate practical consequences. Some freeze-outs take on subtler, “soft” forms and will take diligence to anticipate and recognize. 

Signs that you may be the subject of a founder freeze-out include:

• Locks or other security features are changed, preventing you from physically accessing your business’s offices or worksites
• Restricted access to your company email, servers, or other digital assets
• High-level employees hesitate to speak to you and appear to be attending meetings you are not invited to
• Employees appear to no longer be following your instructions or are not completing tasks assigned by you
• Other co-owners or high-level shareholders are frequently meeting off-site or in meetings you were not made aware of

If your physical or digital access to your company is unfairly restricted, you will need to respond quickly and decisively. In many cases, we can obtain an injunction from the appropriate court that orders restoration of your access.

If a “soft” freeze-out is being attempted, you will likely need to take a different approach. Soft freeze-outs can be difficult to prove without clear evidence. You will need to establish that co-owners or stakeholders are unfairly undermining you. In order to protect and exercise your rights, you should begin gathering as much documentation as possible as soon as you believe a freeze-out might be taking place.

The type of business entity you own will impact your legal options in the event of a founder freeze-out. California regulates partnerships differently than limited liability companies (LLCs) and other entities. Your litigation options may be limited to those defined in your formation documents, which typically outline how disputes amongst stakeholders must be resolved. 

The type of ownership interest you have will also influence available remedies. Minor and majority shareholders of corporations retain certain legal rights when freeze-outs are attempted. You may also be entitled to certain rights contained in your LLC’s operating agreement or your corporate bylaws. 

You must consider your personal goals when pursuing a founder freeze-out claim. Depending on the nature of the conflict, you may wish to reclaim your ownership position and continue running your company. Continuing to participate in a company that attempted to shut you out can be difficult, however, so you may prefer to instead seek damages and negotiate a clean exit from the venture. Our San Francisco ownership and control attorneys can help you understand and explore all of your legal options.