Legal Question in Business Law in New Jersey

Re: terminate a business

You need to retain an attorney immediately to advise you.

Your attorney can review the relevant paperwork concerning the corporation--by-laws, articles of incorporation, corporate minutes, etc.

As you must be aware, a minority shareholder in a close corporation often has very little power concerning management of that corporation. Your role as guarantor of a corporate debt is separate from your role as stockholder in the corporation.

If you believe that the majority shareholder is abusing his fidcuiary duty to the corporation--for example, using corporate funds for his own purposes rather than in the best interests of the corporation--then a lawsuit can be filed to protect the existing assets of the corporation from further dissipation. If you simply have a disagreement over management strategy with the majority shareholder, but the majority shareholder is not acting illegitimately, it may be difficult to persuade a court to intervene.

As a guarantor of a loan to the corporation, you would conceivably have a claim against the corporation if the corporation defaults on the loan and you are forced to make good on the guaranty to the bank. Further, you may have a claim or claims directly against the majority shareholder, particularly if the corporation is simply an "alter ego" of the majority shareholder.

I strongly recommend that you consult with an attorney immediately so that you can explore your legal rights, obligations, and options. If you wish to discuss retaining my services, contact me at:

[email protected]

(973)-605-8995

[Disclaimer: The above comments are not intended as nor should they be relied upon as "legal advice", which can only be obtained by personal consultation with a retained attorney; at which time the specific facts and circumstances of your case can be thoroughly evaluated. This reply is provided for general informational and educational purposes only, and does not create an attorney-client relationship with the responding attorney.]

Re: terminate a business

I agree with Alan, that you are at significant risk, being a minority shareholder. You should demand, in writing, that the bank loan be paid or be re-structured to include the other shareholder. You will also probably have to sue him as a minority shareholder, to assert the creditor rights. I do not know what the internal corporate documents say is to happen if there is a dispute between shareholders and/or how it is to be resolved. The documents should be reviewed by an attorney to determine your rights. As a majority shareholder, presumably having total control of the business, he has a fiduciary duty to you, both as a co-shareholder and as a possible creditor as well. If this duty has been breached, it can form the basis for litigation by you. You need to consult with an attorney familiar with corporate law, who can review the corporate documents and advise you how best to proceed.