Table of Contents
- 1 How is dilution legal?
- 2 Can you dilute minority shareholders?
- 3 Do both state and federal law protect against trademark dilution?
- 4 How can we protect the rights of the shareholders of the company?
- 5 How can a minority shareholder defend themselves against distribution of shares?
- 6 What happens to shares issued in violation of the BOC?
How is dilution legal?
Enacted in 1996, the Federal Trademark Dilution Act (FTDA), 15 U.S.C. § 1125(c), creates a federal cause of action to protect famous marks from unauthorized use; to prevent others from trading upon the goodwill and established renown of such marks; and to prevent dilution of the distinctive quality of such marks.
The most common remedy sought is for the shares of the petitioning shareholder to be bought by other members of the company or even by the company itself. Allotting further shares in the company for the improper purpose of diluting a minority shareholder’s shareholding is an obvious example of unfair prejudice.
What are anti-dilution adjustments?
The anti-dilution adjustment clause is a provision contained in a security or merger agreement. The anti-dilution clause provides current investors with the right to maintain their ownership percentage in the company by purchasing a proportionate number of new shares at a future date when securities are issued.
How do you prove a dilution?
In other words, dilution can only be proven by evidence of actual harm to the famous mark—for example, survey evidence or other direct proof that shows that consumers perceive the famous mark less favorably.
Do both state and federal law protect against trademark dilution?
Trademark dilution is covered under some state laws and federal laws. The Federal Trademark Dilution Act of 1995 preempts the state laws. Under the Federal Trademark Dilution Act of 1995 (Dilution Act), a trademark owner need not prove a likelihood of confusion in order to protect the mark.
Protecting minority shareholders under crowd funding: Building in control via rights to appoint directors and voting rights. Placing limits on the running of the business via veto rights on salaries paid to the team and restricted use of dividends.
How does anti-dilution rights work?
An anti-dilution provision grants an investor the right to convert their preferred shares at the new price. If the company that issued the shares goes public and issues shares at $15, the value of your investment would’ve gone down. An anti-dilution provision would protect investors from drops in value due to dilution.
How can shareholders protect themselves from dilution?
The only legal mechanism to protect shareholders from dilution are pre-emptive rights, which usually are not present and are subject to several exceptions that limit their utility. Preemptive rights only permit the shareholder to avoid shareholder dilution by purchasing additional shares in any new issuance to maintain his percentage.
A method by which a minority shareholder can defend themselves against distribution of shares to the majority shareholder is to demand preemptive rights to the issuance of any new shares. This gives the minority shareholder “an option to subscribe to a new allotment of shares before new shares are offered to other persons.” [2]
Shares issued in violation of the consideration provisions of the BOC are void, and the shareholder would be entitled to an injunction cancelling the share issuance. Alternatively, the shareholder might pursue a damages remedy through a derivative action.
Can a majority shareholder issue himself new shares?
The ability of majority shareholders to cause corporations to issue themselves new shares presents a serious opportunity for oppressive conduct. If the majority shareholder in our hypothetical corporation issued himself ten million new shares, then the minority shareholder’s position would be diluted effectively to zero.