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socrateaser
socrateaser, Attorney
Category: Business Law
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Experience:  Retired (mostly)
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In June 2005 I and 2 others formed an S Corp. I was ...

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In June 2005 I and 2 others formed an S Corp. I was Pres, they were both VPs. I opened a business checking account at Washington Mutual, and I was the only person able to do any transactions. A few months later this arrangement became inconvenient, especially when I was out for 2 days following eye surgery. I and one of the partners went down to add him to the account. A year later I had surgery on the other eye, and was out for 2 days. When i tried to withdraw money from the ATM it wouldn''t work. I called the bank and they informed me that I had been removed from the account. The person I had added to the account had called the bank and asked what it would take to get me off the account. They said they would need written minutes from a meeting of the Board of Directors indicating a majority vote for the decision he mentioned. He wrote on a yellow legal pad a very brief, informal statement to that effect, had the other VP sign it, faxed it to the bank, and it was done. Was this legal?
Submitted: 6 years ago.
Category: Business Law
Expert:  socrateaser replied 6 years ago.

The resolution was passed by a majority of the board of directors, so from that standpoint it was lawful. However, generally, a resolution must be made at a meeting of the board, and all directors are entitled to reasonable notice of the meeting. The exact timing of notice and the meeting is usually specified in the corporate bylaws.

Assuming that you did not have reasonable notice as required, then the resolution could still be passed if the circumstances were an emergency (such as a belief by the other directors that you were misappropriating corporate assets).

So, it could be that the action was legal, depending upon the circumstances. In order to have the issue resolved you would have to demand that your name be restored to the account, and if your fellow directors refuse, then you would need to sue for injunctive and declaratory relief. This would be a derivative shareholder action against the directors for violating the bylaws, by not providing notice. However, it will require not much for the other directors to cure this defect by calling a board meeting and ratifying their prior action.

In effect, you have been booted out of the company for all purposes other than shareholder votes on fundamental corporate change (merger, acquisition, consolidation, dissolution, appraisal rights).

You need to try to discuss the matter amicably with your associates, and if you can't get them to reinstate you, then you should request that they buy you out. If they won't, then you may have to sue the company to force the issue. Ordinarily, you can't force the company to buy back your shares. But, in this case, your shares aren't marketable to anyone other than the other shareholders, so by refusing to purchase, the majority shareholders are injuring the rights of the minority, which is a breach of fiduciary.

socrateaser, Attorney
Category: Business Law
Satisfied Customers: 33867
Experience: Retired (mostly)
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