Legal Question in Business Law in California

Yes, if your articles and by-laws were adequately prepared and described the procedures to follow. If not, then you have to rely upon corporate code general rules. You'll have to notice and conduct shaeholder and director meetings with specific agenda to remove him from participation, offer a buy-out, or whatever else you want done. If serious about getting legal help in this, feel free to contact me.

No, because 50% in the hands of "Side X" and 50% in the hands of "Side Y" is not control in either, but deadlock.

Of course, there's a remote possibility that your bylaws or promoters' agreement anticipated deadlock and that you therefore have a contractual way to deal with the situation. More likely, you do not, and (assuming it is a California corporation), you'll be governed by the deadlock provisions of the Corporations Code, notably Section 308, but other provisions may also apply.

Keep in mind that corporations are run on a day-to-day basis by the officers, who, in turn, are chosen, instructed, and serve at the pleasure of, the board of directors. The directors, in turn, are elected by the shareholders, usually once a year at the annual meeting, but who can (under provisions of the bylaws) sometimes be removed and replaced at other times as well.

It is unnecessary to transfer your shares to another shareholder to put 50% in one hand....the same result can be achieved by two shareholders who have 25% each, so long as they vote the same way. Further, any combination adding up to more than 50% is a controlling interest. Therefore, maybe you or your ally should try to buy one share from the spouse of the problem person before she agrees to give them all up as part of the marital settlement, preventing a deadlock and giving your group an absolute majority. (See a lawyer before trying this).

Mr. Whipple's solution comes up against the Family Code and the Family Law Summons. The wife of the problem shareholder is prohibited from transferring any community property pending a court order or a final divorce judgment. So she cannot transfer any of her shares, not even 1. It sounds like what you need to do is get the wife to agree to vote with you on a couple of changes, and then call a shareholders' meeting before she has to transfer her shares to the problem guy. Then you need to remove him from the board, and issue one more share to you, or enact changes to your bylaws that will deal with him. As Mr. Whipple warns, though, this is a high wire act, so don't do it without a net (i.e., an attorney).