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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Legal
Satisfied Customers: 38567
Experience:  Multiple jurisdictions, specialize in business/contract disputes, estate creation and administration.
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This is for a S-Corp in California with no shareholder agreement

Customer Question

This is for a S-Corp in California with no shareholder agreement in place.
My business partner (he is president and 50% shareholder, I am secretary and 50% shareholder) has taken over the business and more or less fired me because of philosophical differences on how to grow the company.

To date The business owes me $4,800 I have put in since I bought shares to keep the business afloat (compared to his $500-$1000). I have never received any salary or sales commission to his $6,500 in distributions to himself. I have literally never worked harder at anything in my life - I have sacrificed so much.

He now wants me to sell him his shares back, but he does not have an offer that reflects the time, effort, and risk that I have put in.

He is holding all the company property (which is half mine) as bartering chips to get all my shares. Currently he has agreed to pay $3,200 for my expenses and he will sign over the title of our first truck to my mom (who lent $6,000 and has not received a penny from the business). It is already half my truck anyway, but I feel like cooperating and surrendering is the only way to get some money from this snake.

To be fair, his main problem is that he has twice as many sales as me. It is true, it is my contention that I have done most/nearly all of the startup work to get us to this point. He feels he has done just as much non-sales work as me. I feel like I could prove him wrong, if I had to.

By the way, his main threat is that if I don't hand over the shares, he will dissolve the company, take all of "his" customers, and start a new business. It is his assertion that I would lose everything in this scenario, because I took a risk when I was bankrolling the company.

Should I cooperate and hand him my shares and destroy about 6 months of work, my capital, and my dreams?

Basically I want to sign the shares so I can get my mom's truck back, $3,200 dollars now (I paid his rent 2 weeks ago for $2500).

Once I sign my shares over, is that it? Do I have any legal recourse that he was acting as an unelected dictator and using company property as bargaining chips??

I also want to add that my rough valuation on the company after debt is $40,000. Making my shares worth $20,000. I would love to offer him $20,000 for his shares but I don't have it, and I do not think he would take it.
Submitted: 1 year ago.
Category: Legal
Expert:  Dimitry K., Esq. replied 1 year ago.
Thank you for your question. Please permit me to assist you with your concerns.

It is very hard for me to answer whether you should or should not pursue a specific cause of action. Ideally, what would you wish to accomplish in this instance?
Customer: replied 1 year ago.

This is a pest control business


The most ideal is that I would own this business outright, I think I could run it better and I believe I was instrumental in getting us to this point. I don't have money to do this, and I also believe he would start a business and attempt to take all "his" customers back (which is illegal but I doubt it will stop him).


 


I do not think that is really it is possible for me to own this business, though it is a business I have labored for and love very much.


 


The next best thing would be to get paid for my shares at a fair valuation. But when you are paying your business partner's rent, it is unlikely that he can afford to buy your shares (It is quite delusional for him to attempt it).


 


But the reality is, the business address is his home. We have 4 vehicles (all of which I found), 1 employee (I found).


 


The accounts receivable goes to his address. I am no longer to privy to what funds the business is receiving (though the secretary needs to be present to open a new bank account, who knows... Sometimes they give you a month for the secretary to sign on). He is holding the title to all four trucks (in the name of the company). I don't even have a copy of the articles of incorporation because I was living in a hotel at first.


 


So if I do not sign the shares, I will basically get nothing, he has taken total control of the business, the accounts receivable, and all of our assets.


 


I could resign as secretary, and keep my 50% of shares. I suppose he will gut the company, probably sell the trucks to himself for a dollar each, or something and start a new business for himself and resign all "his" customers.


 


I basically feel helpless. The $3200 in compensation for my expenses in effort to get me to sign the shares over to him is going to come from the sale of company truck. The deal will be done in cash so I really have no idea how much he is really getting for the truck. But anyway, he is not really paying for my for my shares with his money, he is using company money to pay for them, which is already half mine anyway.


 


So sorry for making you read all that -


 


-BUT MY MAIN QUESTION IS-


if I sign over my shares to him under these hostile conditions in order to recall some of my mom's loan and receive partial compensation for my expenses (no salary, no sales commission, etc.) just $3200 can I take any legal action against him that he made me sign my shares over under duress and with bully tactics?

Expert:  Dimitry K., Esq. replied 1 year ago.

Jesse,

Please do not be sorry for making me read al, that, this information is very important because it is providing me with a basis of what the concerns may be. I will be happy to first answer your main question and then provide you with some additional thoughts.

You asked:
if I sign over my shares to him under these hostile conditions in order to recall some of my mom's loan and receive partial compensation for my expenses (no salary, no sales commission, etc.) just $3200 can I take any legal action against him that he made me sign my shares over under duress and with bully tactics?
---------------
If you sign under free will, that belies duress. In essence agreeing to sign, even if the conditions are unfavorable, is not really duress. Duress is where there is a threat of force against you or your family, or direct force applied to get you to sign. "Sign or we will break your arm" is duress, "sign or we will gut the company" is not, that is considered aggressive negotiation but not necessarily against the law. Bully tactics are otherwise not illegal, I agree it is quite difficult to deal with someone using such tactics, but those tactics typically do not violate the law. So if you sign, getting the signature revoked is highly unlikely.

Some things to consider--you are correct that you own 50% of the business, including all business assets. It is likewise irrelevant who did more work in the beginning or who is doing more work today, what governs is how the agreement was put in place. Both have co-equal rights to the assets ad to the profits. Explain that to the other party or threaten to pursue a fiduciary duty breach suit against him for withholding all assets and information that you are entitled to. Unless the articles have comments about making him the general shareholder and you limited, both of you can make decisions on behalf of the business and both are entitled to such information. He could open a new business, but it would likewise be a violation of the fiduciary duty he would owe this business and all shareholders, including you. That is why i do not quite see a benefit of signing anything here--you can demand further negotiation or even request that an accountant evaluate the business value and then split the costs between you for it. Then if he wishes to buy you out, you could make him a loan for the funds he is not yet paid to you for your share, or vice versa.

Good luck.

Customer: replied 1 year ago.

This is great help. Just one more thing -- I could get the accountant to value the company. But he keeps taking on loans etc. that might make the company less valuable. He has not shown great decision making so far.


 


So should I resign as secretary so that any actions he takes starting now will not reflect my consent. (And yes my shares are not limited. I formed the articles, just should have followed through with a shareholders agreement).


 


Thanks!

Expert:  Dimitry K., Esq. replied 1 year ago.

Thank you for your follow-up, Jesse. Glad to help.

My apologies but I cannot answer on what you should, or should not do--that is something only your own attorney can provide you with. As I am not your attorney, all I can provide you with are options with what you 'could' do, and why, but not on a direct cause of action. I am likewise unclear on what you wish to accomplish by resigning other than claiming you are no longer running the entity. If that is the case, then that would help you get it done, but beyond that point I am not clear on what this would ultimately accomplish.

Good luck.

Dimitry K., Esq., Attorney
Category: Legal
Satisfied Customers: 38567
Experience: Multiple jurisdictions, specialize in business/contract disputes, estate creation and administration.
Dimitry K., Esq. and 12 other Legal Specialists are ready to help you
Customer: replied 1 year ago.

If the company is dissolved and assets are divided and creditors paid off, would my unequal contribution (and further my unequal distribution) make me a creditor? Or would we split assets 50-50 after paying off the creditors?


 


Thanks

Expert:  Dimitry K., Esq. replied 1 year ago.

Thank you for your follow-up, Jesse.

You are not a creditor in this instance, you are part owner. If all debts are paid off, then as the initial investor, depending on how the agreement was worded, may entitle you to pursue the remainder first to recoup your investment. Otherwise the remainder is split 50/50 based on ownership.

Good luck.

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Dimitry K., Esq.
Dimitry K., Esq.
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38567 Satisfied Customers
Multiple jurisdictions, specialize in business/contract disputes, estate creation and administration.