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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 118253
Experience:  All corporate law, including non-profits and charitable fraternal organizations.
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For this question to make since I believe I need to start off

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For this question to make since I believe I need to start off with a brief background. I am a shareholder in a North Carolina S Corporation, Innovative Systems. Between me, my ex-wife and my grandmother, we own about 45% of the company. Prior to 2001 the company was owned by me and my ex-wife. We merged with another company with each family owning 50% of the new company. I was to serve as President. Shortly after merging the owner (Mike) of the other company gained control through fraudulent means and fired me I sought legal counsel at the time and they said there was not much I could do about it.
Since then the only communication we have received from the company has been an annual Schedule K-1. The last 4 years showed a profit for 2 years and a loss for 2. Mike has refused to pay us any dividends since they took control.
In the last 2 weeks we heard from friends that the company had closed it doors. Mike has not notified us in any way. We also found out that another company; Audio Advice has acquired the vehicles and assumed the lease which Mike had a personal guarantee on. This other company also got the inventory, current projects, signed contracts and customer database. They did not assume any of the other debt and claim they did not “purchase” Innovative Systems.

The question is; is this legal? How can he give this new company(Audio Advice) all of the assets of Innovative Systems when there are other owners? Especially in exchange for releasing him (Mike) from his personal liabilities? What action should we take?
While it sounds illegal, it is not and it is something that often gets done with businesses. Many times small companies in making such aquisitions will not agree to take on any debt of the company they are buying out and only buy the assets of the corporation. You really should get to a corporate attorney and get them to look at the entire transaction to determine if he breached his fiduciary duty to the other shareholders of the corporation and review the corporate bylaws to determine if he even had the power to do what he did. Only after you get an attorney to review the entire deal and the corporate bylaws will you know what further action to take against him.

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