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MShore Law
MShore Law, Attorney
Category: Business Law
Satisfied Customers: 25285
Experience:  Drafted Negotiated and/or Reviewed Thousands of Commercial Agreements
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Two business partners are starting a medical equipment supplier

Customer Question

Two business partners are starting a medical equipment supplier company. Owner A owns 50% while owner B owns an equal 50%. Owner A is at risk of being sued for competing in an industry where he previously conducted business. Owner A believes there's a low chance of being sued by the company where he was a previous investor as he gave a verbal commitment to not compete in the same industry within 12 months. If owner A is sued and held personally liable for breach of a non-compete agreement and the new company is also sued can the company be held liable for all damages OR can the company only be sued for 50% of its assets since owner A (owner who breached non-compete agreement) only owns 50%?? The new company is not yet established. Ownership can still be divided into 40/60 or 49/51. If owner A owns 49% or less (minority owner) can this help protect the majority of the company's assets if sued??

I'm owner B. I'd like to know how to protect my shares (if possible) in the low chance my business partner is sued and the company is sued. I may have the chance to own 51% instead of 50%.

The point of this question is not to find out whether owner A can be sued or if he may be in breach of a non-compete agreement. I'd like to know how to protect my ownership/interest in the company IFF owner A is sued.

Corporation location: California

Thank you.
Submitted: 5 years ago.
Category: Business Law
Expert:  MShore Law replied 5 years ago.
Thank you for the post, I am happy to assist you by answering your questions. The new company can be enjoined from permitting the owner whom would be violating the non-compete to have an ownership interest in the company, or in the alternative the member violating the non-compete can be enjoined from participating in the management of the new company, in either even the effect would be the cessation of the new company's operations insofar as they violate the terms of the partner's noncompete (assuming the noncompete is enforced). Whether the member owns 49% or 51% is irrelevant in this regard. Please let me know if you need additional guidance.