We have a small s-corp with 2 50/50 partners. One of the partners has become very derelict in his duties (showing up late, not showing up at all, not performing his job to required levels). He has also started using illegal drugs on top of having become an alcoholic, with both issues significantly affecting his job performance. He has been on house arrest in the very recent past, and due to recurring dui's has a breathalizer installed in his (company) vehicle. Can he, as a 50% owner, be fired for breach of fiduciary duties due to these issues? It is causing severe strain and problems with our day-to-day operations.
1 Answer from Attorneys
First, are there any written agreements in place like a restricted stock agreement or shareholder agreement, employment agreement, etc.?
If yes, they all need to be carefully reviewed. If not, then as a 50/50 ownership neither of you have the authority to fire the other. And unless their duties as an officer have been defined, you really can't claim that they are derelict of general business duties because a shareholder is not necessarily required to show up at all unless they are obligated to.
Your best bet would be to offer to buy out your partner's interest. If he is unwilling or very unreasonable you may have to seek a court ordered partition. You should probably not have a problem with that given the facts (house arrest, substance abuse, breaching duties of loyalty and care, etc.), but getting there will presumably cost you in legal fees, so best to avoid that if you can.
Before you take any further action, I suggest that you consult with a lawyer in private and discuss your objectives in more detail. You can start by calling around to several for a free phone consultation, get some insights then pick the best fit to work with.
If you would like to discuss further over a free phone consult, feel free to contact me anytime that is convenient.
Our firm is now referred by the American Bar Association (see under the New York section): http://www.americanbar.org/groups/delivery_legal_services/resources/programs_to_help_those_with_moderate_income.html
DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis of this posting.
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