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socrateaser
socrateaser, Lawyer
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I have an S Corp with my partner in a retail business. I am

Customer Question

I have an S Corp with my partner in a retail business. I am the pres. She is the vp. We have equal shares.. 50/50. I am the and the sweat equity of the company, all ideas, designs, and contacts we're mine, and she is the financial equity. I originally wanted a silent partner, but she did not want to be silent and wanted to learn the business. I agreed because I desperately wanted to execute this concept I had for over 2 years and also wanted her to trust me. Little did I know she would try to get rid of me and take the business for herself
After I found the location, negotiated the lease with buildout, spent 6 months every single day (10 to 20 hr days) of logo, labels and signage design, contacted and met with manufactures to purchase our inventory, hired friends and family to do our construction and build out for our space (I was there every minute they were and was painting and hanging...running back and for to get supplies...) hired and trained our sales staff, contacted ally contacts in the media, planned the grand opening, operated the store for 4 months, she and her husband ( who has nothing to do with the company other than giving his wife money), called a "shareholders" meeting at their house and told me there is no more money and we would have to close the store unless we accepted an infusion of cash from her husband and put h on the board of directors. I immediately refused because they ganged up in me as it was, and began to see what they were doing.... Getting me out. It was like thanks for building us a business, don't need u anymore!
Knowing I do not have the deep pockets they have, they figured I wouldn't be able to afford an Attny, so they drew up a fraudulent document stating that at a "shareholders meeting held by the board of directors, I had been voted off the board and the newly elected officers were my partner as Pres, and her husband as VP. They also locked me out of the computer and changed the locks on the store! One of my employees Let me know that they were all notified about the new "owners" and we're having a meeting at our store that I was not invited to, but I showed up with my articles of inc, and the lease and tried to explain to my employees that what they were doing was wrong and we will straighten things out. It get a worse, my partners husband asks me to leave by force, by grabbing my arm in which I was injured an a police report was filed.
I hired a lawyer at the beginning, but couldnt afford to go on any further. Was told to wait to see how the business was doing, being that it was so new and not worth much. I've Waite a year, andit is profitable. They are now going forward with the plans we had to open another location with in a year at the mall I wanted to open at.
I'm now ready to pursue this, but feel I need an atty who specializes in this situation.
Can anyone help? I'm in Honolulu....
J. Gines
Submitted: 1 year ago.
Category: Legal
Expert:  socrateaser replied 1 year ago.
Hello,

Do you have physical shares in the corporation issued in your name?
Customer: replied 1 year ago.
No. 1000 shared. Never distributed.
Our S corp. is Too Blondes Inc. Dba LBDB - Little Black Dress and Bikini
Corp address is my residence.
Only the 2 of us on the board of directors
I'm Pres, she VP.
According to our By Laws, everything she has done is wrong.
Only she and I can vote on anything.
There needs to be 10 day written notice for a shareholders meeting and a five day notice for a special meeting.
She called me to a meeting, one day notice, gave me an ultimatum and because I didn't accept, she voted me off, and her husband on.
They have since revised the articles of incorporation with the DCCA. Then they registered out trade name LBDB as a new S Corp, I'm assign to be able to keep the name.
I originally registered the name under my name, being that it was mine, however now I see that our corporation registered the name with my name on the form but I never signed it. Not aware of the corp taking my name.
I have been in retail for 25 yrs. I had my own store for 7 yrs and was successful until a bad divorce in which I had to close my business and file bankruptcy, hence the reason for a financial partner. At no time did I ever think that my partner would do this to me. My heart and soul went into this. The plan was for other locations, a retail chain. . At the time this happened, I had someone looking at us for Las Vegas, and we also had a production company filming my girls and u for a reality show. When this happened, both went away.
I feel like I put precious time and energy into this project and spent time away from family to build a future only to have my partner and her husband
steal my portion, without the offer to buy me out or pay me for my contributions, not to mention the future potential earnings this could have. At the time this happened, the business had only been opened 4 mo. Now it's been a year. They are opening another location, so it seems the company is making money, and I should be too.
I have until Feb 2014 to file.
What steps should I take?
What am I entitled too?
Do I sue for $$, fraud, trademark and physical assault?
I have tons of witnesses who went they this with me.
All of this is unjust, boy to mention unethical and immoral.
What kind of justice is there for me? Right is right, wrong is wrong.
Also, I can not afford the retainer it takes to hire an atty. seen 12 different ones. They all say I will win, but what am I entitled to, and how much $$ will it take to pursue this?
Expert:  socrateaser replied 1 year ago.
Hello again, I thought you had changed your mind about asking a question.

Tell me, were you paid for your labor in acting as president, and for whatever other services you provided in managing the business?

And, do you have any records of your time spent working for the business -- or if not, are there other employees who would be willing to testify to the amount of time you spend working for the business?

Note: Please just answer my questions as asked. No embellishment is necessary.

Thanks in advance.
Customer: replied 1 year ago.
6 mo prior, I worked at putting the store together, no pay.
When store opened, we both agreed to a small salary for us both of 1500 ea per mo. We both were on as employees of the company.
I ran the store, she did inventory.
As for witnesses, everyone who did work for us or with us is a witness and will state so. Vendors, contractors, Mall mgmt, employees, etc
Because of my past retail business, the tv and newspaper press, and the fact that i was hands on at the store, most people thought it was my store and did not know of my partner. I still get stopped by people who say, "your the lady that owns LBDB."
FYI... She and her husband are Mortgage Brokers. They had no prior retail experience. I taught her everything. It's like a put together a store, taught her how to run it, and now they don't need me.
I also filed charges on her husband for
assault. Have witnesses of that as well. As for witnesses, no problem.
Sorry if I over explain :)
Expert:  socrateaser replied 1 year ago.
Okay, thanks. Here's the deal.

In order to be an owner of a corporation, a person must hold shares in the corporation. A person who does not buy into the corporation can earn his or her way in over time, by diverting earnings/salary/wages to the purchase of shares; or the person can be granted shares in exchange for no direct payment -- but those shares would represent taxable income to the grantee.

Your allegations suggest that you were never issued shares, no earnings were diverted to their purchase -- and you never paid anything for any shares. Therefore, you are not an owner/shareholder of the corporation. You could sue for fraud, on the theory that you were tricked by a more savvy business person into believing that you had an ownership interest, but since no 1099 was ever issued to you for the value of your shares, nor any W-2 deductions showing that the shares were paid for or valued, there is a question as to whether or not you -- someone who states in your own allegations that you are an experienced businessperson, could have been defrauded.

I realize that you believe you were tricked, and perhaps you were -- but for the purposes of this analysis, I am taking the position of an neutral decision maker (i.e., a judge), who has no idea of anything in the case, other than that which can be proved in the court record. And, so far, you will have a difficult time proving that you were offerred a share ownership in the business, absent some document or testimony from someone who was in a position to know of the ownership offer -- or who overheard your ex-partner admit that you were supposed to be an equal owner of the corporation.

Assuming the worst case, that you cannot prove your case in court, then there may be another option -- one which could be used to leverage the owners to either grant you ownership, or pay you a substantial amount of money. That option would be to sue for unpaid wages. As an executive of the corporation (i.e., an exempt employee), your salary must be at least $1,976.66 per month ($455 per week) under federal law -- otherwise, you are entitled to at least minimum wage plus overtime for your efforts.

Since your salary was only $1,500, you were a non-exempt hourly employee, and that means that you would be owed at least $10.88 per hour for every hour over 40 that you worked from day one until the date of your discharge. This could add up to quite a bit of change, especially as it would bring with it the additional penalties of failure to pay unemployment and workers compensation insurance to the state, and FICA/FUTA to the IRS -- all of which could add up to create tens of thousands of dollars in both unpaid wages and fines, which would be set against your "employer's" incentive to make you an owner.

Now, here is the difficulty with all of this: you can't go to these people and tell them that unless they pay you $X or make you an owner, that you will report them to the Department of Labor, IRS, and state tax authorities -- that would be criminal extortion.

But, you can hire a lawyer and have him set a meeting, at which some of these possible outcomes can be mentioned, and the lawyer can calculate your likely damages, if you sue -- and maybe the certain knowledge that between you and the government, that your "employer" will be destroyed by the heavy hand of the law, unless it makes a suitable offer, just might get you a workable settlement.

If you simply stand your ground and sue for fraud, I believe that the risk of loss combined with the cost of suing may turn your case into a net loser. If I were representing you, I would recommend against trying to sue your way into an ownership position -- because there is just too much financial risk. Instead, I would try to leverage the failure to suitably pay you wages as a means for a financial settlement, and then you will just have to move on to your next project (and, you can file for unemployment insurance benefits, too, since you were clearly filed without good cause).

Please let me know if I can be of further assistance.

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socrateaser
socrateaser
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