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what is the partner taking out?
Just was notified that he has rented another office and is setup other checking accounts for business. We started the corp with the book of business that was assigned to him specifically but the money is being reported on the S corp EIN instead of his ssn. He is having financial problems and initially said he wanted to setup terms differently. He has notified the employees that he is taking the business over and moving it elsewhere.
If the existing bank account has money then and you are an authorized signatory you need to notify the bank immediately that you suspect fraud and that they should freeze the account.
As far as starting another business, generally, shareholders of a corporation have no obligations or dutiesto each other unless there is a specific non-compete agreement, as an example. However many courts do impose fiduciary duties on shareholders of closely held corporations. Because of the unique characteristics of a closely held corporation, there is greater potential for actual or perceived unfairness among the shareholders. This means that as a shareholder / member (if it's an LLC), your partner generally has the obligation towards you and the business not to siphon off business, not to compete with you and the business regardless who orginaly brought the book of business.
Unless there is a specific written agreement allowing your partner to start their own venture, your partner is harming your financial interests and is creating damages
As such, you should notify the bank immediately, you should copy the books of the company and any other relevant information. You should also send a demand notice telling your partner to stop his actions. If your partner is taking money out of the company without proper permission you should also consider filing a criminal complaint for embezzlement. Finally, if the damages created are significant consider hiring an attorney who could file an emergency application with the court to stop the partner's actions, and recoup damages.
You may also offer your partner to sell your portion as part of this process or as a separate offer. Realistically you buying out your partner or your partner buying you out would be the best resolution as you cannot force your partner to be in a partnership. Therefore, a sale/purchase would cover your damages and compensate you for your investment in the business
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Always a solid answer. Many thanks.
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