Legal Question in Business Law in California

Re: Corporation take over

The starting point here is to understand what the legal power structure is in a corporation.

Corporations are run by their officers on a day-to-day basis, but the officers, from the president on down, are appointed by, and serve at the pleasure of, the board of directors, which may replace the officers at any time, subject only to a possible action for breach of contract if a dismissed officer had a contract and the firing was a breach.

The board of directors is, in turn, elected by the shareholders. Once elected, the directors generally have tenure until the next regular election. The corporation's articules of incorporation may, but more often its bylaws state, how often the directors are re-elected and what, if anything, is cause to remove them between regularly-scheduled stockholder meetings.

Some corporations have so-called cumulative voting for directors, so that, for example, a holder of 1/3 of the shares can elect at least one out of three directors. Others have regular voting so that any stockholder with 51% of the shares can elect all of the directors.

Corporations with only one shareholder only need one director; if there are two shareholders, then there must be at least two directors; with three or more shareholders, the corporation must have at least three directors.

I think the inquiry here begins with figuring out who owns the stock in this corporation. If you are neither a stockholder nor have a contract with the corporation, it's hard to imagine how you could have any right to object to what's going on. Your power to participate in company affairs must arise from stock ownership (or from a contract). Ownership is a more powerful lever; as an owner of a sufficient interest you'd be (almost) guaranteed the legal right to participate in management; if your rights are based only on contract, you could sue for damages but probably not for reinstatement.

Since you were the founder and president, you probably know who the stockholders are, and how many shares each holds. If you have neglected corporate formalities such as issuing shares, taking in capital investment, keeping books, filing tax returns, etc., you will need the assistance of a lawyer and probably a bookkeeper or accountant to reconstruct the capital accounts, minutes of meetings, stockholder register, etc. sufficiently so that a court can determine the relative rights of the parties and issue appropriate orders.

You may have a very strong case, but a lot of fact finding and documentation will probably be needed before you can assert your rights.

Re: Corporation take over

Got a real nice partner there.

Yes, you have recourse.

You need to get with an attorney ASAP to make sure that you do not sit on your rights and have the possibility of losing them.

You should collect all of your documentation and copy it to give for review.

I would be happy to discuss the matter with you.

Caleb

Re: Corporation take over

We may be able to help, but you have not asked a specific question yet. If you would prompt assistance, contact us directly with what exactly you are looking for in the way of legal assistance. i.e. negotiations, filing a lawsuit, etc..?

Re: Corporation take over

If you have an ownership interest in the corporation, the other owners cannot simply freeze you out. They owe you a fiduciary duty to act in good faith. And under the appropriate circumstances, you could even file a lawsuit to force dissolution/liquidation of the company. However, it sounds more you like need assistance negotiating a settlement or a buyout. Feel free to contact my office for further assistance.