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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Legal
Satisfied Customers: 111486
Experience:  JA Mentor -Attorney Labor/employment, corporate, sports law, admiralty/maritime and civil rights law
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I am a partner in an s-corp that was formed in California in

Customer Question

I am a partner in an s-corp that was formed in California in 2010.
I was running a small service business in North Carolina when a sales manager at a company that I bought some equipment fro was impressed with my business model and connected me with an investor in CA. For the first few years as expected we all worked for free to get it going but in 2015 the company grossed 1 million dollars and is on track this year to make about 3 times that. I am a minority shareholder. The president started paying his wife a salary in December 2015 and his friend from high school who he made business development VP started get a salary along with his wife (who is an idiot) as well as himself. Despite my requests for financial reports and other pertinent information, he has not provided me with anything. 2 weeks ago I received via Fedex overnight, a shareholders certificate with a post it note from the attorney stating that "sorry this is late getting to you but I was waiting for Brad to give me your address.The certificate was dated 2/2014.(2 and a half years ago). Why Fedex it to me now? I asked why I wasn't receiving a salary and reminded them that the company was based on my original business model and that I was still performing all of my original duties as clinical manager. He never replied. I still do not have any reports. I suspect that he is selling or planning to sell the company and does not want me to know its worth or the value of my shares. What are the steps that I need to take and am I on the right track as far as being suspicious that something is very wrong and unfair here?
Submitted: 5 months ago.
Category: Legal
Expert:  Law Educator, Esq. replied 5 months ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
As a shareholder, you are entitled to inspect the books of the company and you need to make a formal written request to do so again. If they are refusing to allow you access, you would have to take them to court.
Regarding salaries, unless you have a shareholder or operating agreement that says you would be entitled to a specific salary, if you have performed work for the corporation and you were supposed to be paid, then you would have to sue them for the money that you should have been paid for the work you performed. You start by adding up what you should have received for the work you did and make a written demand on the company. If they refuse to pay, then you would have to sue them to recover your money.
As far as payment to shareholders, if the board of directors paid out dividends on shares, you should have received them. However, if they never paid out dividends, which was solely at the discretion of the Board. The board decides how much if any dividends would be paid, unless the operating or shareholder agreement mandates such payments.
Them sending you your share certificate does not necessarily mean anything other than they have been slow. Until you can get information from them though, there is no way to know whether or not they are planning to sell or that they were just slow in getting it to you.
Customer: replied 5 months ago.
basically they can pay themselves and their wives and I am just supposed to continue to work for free now that the model that I brought and made work is grnerating millions? How do I know what my shares are worth? That would only be through seeing the books. I don't know why they will not give me a report
Expert:  Law Educator, Esq. replied 5 months ago.

Thank you for your reply.

If you were doing work for the S corp and were supposed to be paid for the work you can sue them for payments. The board sets share price/value based on the value of the company. If they refuse to show you the records, as a shareholder you could sue for that access as well.

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