Are private companies required to tell shareholders anything?

Question

Kind of a broad question, I know. I left a company a few years back and exercised a bunch of stock. Since then they've raised a new round of funding, and apparently taken a bunch of bridge loans. Rumor has it this has absolutely crushed the value of my holding (into the fractions of a penny territory), but I've never received any correspondence from them about any of it-- I've only heard it from current employees.Do companies have absolutely no obligation to shareholders when they're private or something?

davismwfl · Accepted Answer

My general rule is don't exercise stock from an early stage company because they have so many more rounds to go through that by the time you are able to liquidate them your original .3% that you exercised will be a fraction of that amount that rarely is worth it. Of course, there are exceptions.FWIW from what I know and understand, there are different rules for shareholders of private organizations that haven't raised money and those that have which are required to register with the SEC. Anyone who raised a proper round had to file with the SEC so that changes the rules some, also the number of investors involved changes it, class of stock etc. Read your original Agreement and write the company and ask for a current standing of your equity (do not call, write). If they fail to respond in 30-45 days then I'd likely report them for failing to discharge their duties for shareholders. From what I understand it doesn't really get them in trouble but they will get a letter from the SEC stating they've been contacted with a complaint about failure to do XYZ and they have X period to correct it. Of course, IANAL and my information may be out of date with all the new changes over the past 3-5 years with the SEC.

drocer88 · Answer

https://smallbusiness.chron.com/guidelines-disclosure-transp...Read the fine print on your options award. Diluting the little guys is an old Valley tradition. Unless you have a no dilute clause, you're out of luck.

pensv0 · Answer

Generally they do. When you bought your stock, they must have come with a document outlining what are your rights within that company. Best try to find it and see what it says.In practice, some comply to the rules and some others don't.

Are private companies required to tell shareholders anything?

https://smallbusiness.chron.com/guidelines-disclosure-transp...
Read the fine print on your options award. Diluting the little guys is an old Valley tradition. Unless you have a no dilute clause, you're out of luck.

Generally they do. When you bought your stock, they must have come with a document outlining what are your rights within that company. Best try to find it and see what it says.
In practice, some comply to the rules and some others don't.