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Richard
Richard, Attorney
Category: Business Law
Satisfied Customers: 55594
Experience:  32 years of experience practicing law and a businessman.
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How can I dissolve an il corp if the other shareholder will

Customer Question

How can I dissolve an il corp if the other shareholder will not agree. He is charging unapproved expenses. Can I get an injunction? I am the CEO but we own 50 shares each. There is no written agreement
Submitted: 2 years ago.
Category: Business Law
Expert:  Richard replied 2 years ago.
Hi! My name is ***** ***** I look forward to helping you!
In your situation, you can file suit for a judicial dissolution if your other shareholder won't agree to dissolution voluntarily. A judicial dissolution is specifically provided under the following Illinois statute:
"(805 ILCS 5/12.56)
Sec. 12.56. Shareholder remedies: non-public corporations.
(a) In an action by a shareholder in a corporation that has no shares listed on a national securities exchange or regularly traded in a market maintained by one or more members of a national or affiliated securities association, the Circuit Court may order one or more of the remedies listed in subsection (b) if it is established that:
(1) The directors are deadlocked, whether because of
even division in the number of directors or because of greater than majority voting requirements in the articles of incorporation or the by-laws or otherwise, in the management of the corporate affairs; the shareholders are unable to break the deadlock; and either irreparable injury to the corporation is thereby caused or threatened or the business of the corporation can no longer be conducted to the general advantage of the shareholders; or
(2) The shareholders are deadlocked in voting power
and have failed, for a period that includes at least 2 consecutive annual meeting dates, to elect successors to directors whose terms have expired and either irreparable injury to the corporation is thereby caused or threatened or the business of the corporation can no longer be conducted to the general advantage of the shareholders; or
(3) The directors or those in control of the
corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent with respect to the petitioning shareholder whether in his or her capacity as a shareholder, director, or officer; or
(4) The corporation assets are being misapplied or
wasted.
(b) The relief which the court may order in an action under subsection (a) includes but is not limited to the following:
(1) The performance, prohibition, alteration, or
setting aside of any action of the corporation or of its shareholders, directors, or officers of or any other party to the proceedings;
(2) The cancellation or alteration of any provision
in the corporation's articles of incorporation or by-laws;
(3) The removal from office of any director or
officer;
(4) The appointment of any individual as a director
or officer;
(5) An accounting with respect to any matter in
dispute;
(6) The appointment of a custodian to manage the
business and affairs of the corporation to serve for the term and under the conditions prescribed by the court;
(7) The appointment of a provisional director to
serve for the term and under the conditions prescribed by the court;
(8) The submission of the dispute to mediation or
other forms of non-binding alternative dispute resolution;
(9) The payment of dividends;
(10) The award of damages to any aggrieved party;
(11) The purchase by the corporation or one or more
other shareholders of all, but not less than all, of the shares of the petitioning shareholder for their fair value and on the terms determined under subsection (e); or
(12) The dissolution of the corporation if the court
determines that no remedy specified in subdivisions (1) through (11) or other alternative remedy is sufficient to resolve the matters in dispute. In determining whether to dissolve the corporation, the court shall consider among other relevant evidence the financial condition of the corporation but may not refuse to dissolve the corporation solely because it has accumulated earnings or current operating profits.
(c) The remedies set forth in subsection (b) shall not be exclusive of other legal and equitable remedies which the court may impose.
(d) In determining the appropriate relief to order pursuant to this Section, the court may take into consideration the reasonable expectations of the corporation's shareholders as they existed at the time the corporation was formed and developed during the course of the shareholders' relationship with the corporation and with each other.
(e) If the court orders a share purchase, it shall:
(i) Determine the fair value of the shares, with
or without the assistance of appraisers, taking into account any impact on the value of the shares resulting from the actions giving rise to a petition under this Section;
(ii) Consider any financial or legal constraints
on the ability of the corporation or the purchasing shareholder to purchase the shares;
(iii) Specify the terms of the purchase,
including, if appropriate, terms for installment payments, interest at the rate and from the date determined by the court to be equitable, subordination of the purchase obligation to the rights of the corporation's other creditors, security for a deferred purchase price, and a covenant not to compete or other restriction on the seller;
(iv) Require the seller to deliver all of his or
her shares to the purchaser upon receipt of the purchase price or the first installment of the purchase price; and
(v) Retain jurisdiction to enforce the purchase
order by, among other remedies, ordering the corporation to be dissolved if the purchase is not completed in accordance with the terms of the purchase order.
For purposes of this subsection (e), "fair value", with respect to a petitioning shareholder's shares, means the proportionate interest of the shareholder in the corporation, without any discount for minority status or, absent extraordinary circumstances, lack of marketability.
The purchase ordered pursuant to this subsection (e) shall be consummated within 20 days after the date the order becomes final unless before that time the corporation files with the court a notice of its intention to dissolve and articles of dissolution are properly filed with the Secretary of State within 50 days after filing the notice with the court.
After the purchase order is entered and before the purchase price is fully paid, any party may petition the court to modify the terms of the purchase and the court may do so if it finds that such changes are equitable.
Unless the purchase order is modified by the court, the selling shareholder shall have no further rights as a shareholder from the date the seller delivers all of his or her shares to the purchaser or such other date specified by the court.
If the court orders shares to be purchased by one or more other shareholders, in allocating the shares to be purchased by the other shareholders, unless equity requires otherwise, the court shall attempt to preserve the existing distribution of voting rights and other designations, preferences, qualifications, limitations, restrictions and special or relative rights among the holders of the class or classes and may direct that holders of a specific class or classes shall not participate in the purchase.
(f) When the relief requested by the petition includes the purchase of the petitioner's shares, then at any time within 90 days after the filing of the petition under this Section, or at such time determined by the court to be equitable, the corporation or one or more shareholders may elect to purchase all, but not less than all, of the shares owned by the petitioning shareholder for their fair value. An election pursuant to this Section shall state in writing the amount which the electing party will pay for the shares.
(1) The election shall be irrevocable unless the
court determines that it is equitable to set aside or modify the election.
(2) If the election to purchase is filed by one or
more shareholders, the corporation shall, within 10 days thereafter, give written notice to all shareholders. The notice must state: (i) the name and number of shares owned by the petitioner; (ii) the name and number of shares owned by each electing shareholder; and (iii) the amount which each electing party will pay for the shares and must advise the recipients of their right to join in the election to purchase shares. Shareholders who wish to participate must file notice of their intention to join in a purchase no later than 30 days after the date of the notice to them or at such time as the court in its discretion may allow. All shareholders who have filed an election or notice of their intention to participate in the election to purchase thereby become parties to the proceeding and shall participate in the purchase in proportion to their ownership of shares as of the date the first election was filed, unless they otherwise agree or the court otherwise directs.
(3) The court in its discretion may allow the
corporation and all non-petitioning shareholders to file an election to purchase the petitioning shareholder's shares at a higher price. If the court does so, it shall allow other shareholders an opportunity to join in the purchase at the higher price in accordance with their proportionate ownership interest.
(4) After an election has been filed by the
corporation or one or more shareholders, the proceeding filed under this Section may not be discontinued or settled, nor may the petitioning shareholder sell or otherwise dispose of his or her shares, unless the court determines that it would be equitable to the corporation and the shareholders, other than the petitioner, to permit the discontinuance, settlement, sale, or other disposition. In considering whether equity exists to approve any settlement, the court may take into consideration the reasonable expectations of the shareholders as set forth in subsection (d), including any existing agreement among the shareholders.
(5) If, within 30 days of the filing of the latest
election allowed by the court, the parties reach agreement as to the fair value and terms of purchase of the petitioner's shares, the court shall enter an order directing the purchase of petitioner's shares upon the terms and conditions agreed to by the parties.
(6) If the parties are unable to reach an agreement
as provided for in paragraph (5) of this subsection (f), the court, upon application of any party, shall stay the proceeding under subsection (a) and shall determine the fair value of the petitioner's shares pursuant to subsection (e) as of the day before the date on which the petition under subsection (a) was filed or as of such other date as the court deems appropriate under the circumstances.
(g) In any proceeding under this Section, the court shall allow reasonable compensation to the custodian, provisional director, appraiser, or other such person appointed by the court for services rendered and reimbursement or direct payment of reasonable costs and expenses, which amounts shall be paid by the corporation.
(Source: P.A. 94-394, eff. 8-1-05; 94-889, eff. 1-1-07.)"
BUT, you should be able to accomplish this without the need for a judicial dissolution because given your co-shareholder's actions, you really have all the leverage. Given the company's situation and your co-shareholder's past history of taking money/assets, clearly he has misappropriated corporate assets and usurped corporate opportunities for his own benefit. This gives you recourse against him from both from a criminal side and the civil side. On the criminal side, you can prosecute him for embezzlement, fraud, and theft. On this front you would want to contact the district attorney's office as the district attorney's office is where criminal prosecutions are pursued. On the civil side, you have a cause of action for fraud, misappropriation of company assets, breach of fiduciary duty, breach of contract, as well as several other causes of action. The fraud and misappropriation causes of action will entitle you not only to your actual damages, but punitive damages as well. To be honest with you, your best alternative here is to pursue this from the civil side. A criminal prosecution requires you to prove intent to not pay you from the beginning and a much higher burden of proof..."beyond a reasonable doubt" versus simply "preponderance of the evidence" on the civil side. And, even if you could get a prosecutor to pursue this, you would then find him likely spending any money he has to defend himself rather than paying you. But, you can also work all this out in a settlement with him and allow him to avoid these problems by simply selling out or agreeing to a dissolution.
Thank you so much for allowing me to help you with your questions. I have done my best to provide information which fully addresses your question. If you have any follow up questions, please ask! If I have fully answered your question(s) to your satisfaction, I would appreciate you rating my service as OK, Good or Excellent (hopefully Good or Excellent). I thank you in advance for taking the time to provide me a positive rating!
Customer: replied 2 years ago.
If we are 50/50 as shareholders do I carry any more weight as CEO? I am trying to keep this out of court and just move forward.
Expert:  Richard replied 2 years ago.
Thanks for following up. You do because it's the directors that appoint the CEO and the shareholders that elect the directors. And, if you are 50/50 across the board, he doesn't have the votes to remove you because it would take a majority. BUT, being CEO does not allow you to dissolve the corporation because that requires a majority vote of the shareholders. But, if you approach him and give him the either/or option of dissolving voluntarily or dissolving judicially (and let him know that if he forces the latter, you will be pursuing your other civil and criminal options), in my experience, he will agree to dissolve voluntarily.
Customer: replied 2 years ago.
Is there any reason I cannot set up a new corporation to move forward with new business? This business is specifically for helping Veterans to receive the Aid and Attendance va benefit and some financial planning comes into play as well. I am series 6, 7 and 65 so I can assist people with this. The other shareholder with the current company is permenenly barred from the securities industry but he can sell insurance products.
Expert:  Richard replied 2 years ago.
You can, but it would be best if you resolved this situation first. What you want to avoid is giving him a potential claim against you by alleging that you are now "usurping a corporate opportunity" by starting a business on your own that should have been undertaken in your current entity. Granted he is not acting in good faith, but if resolving your current situation does require you to go to court, you want to go to court with "clean hands" so as not to give rise to any potential claim he can make against you.