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A family California corporation with three shareholders is…

A family California corporation with...
A family California corporation with three shareholders is having difficulty. It is believed that the shareholder that is acting as President currently is misappropriating funds (paying for personal expenses) and wants to dissolve the company. A retired share holder no longer wants to be involved and the third shareholder would like to continue company however does not want debt to include funds that were used to pay for Presidents expenses. What should we do?
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12/28/2016
socrateaser
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 40,074
Experience: Retired
Verified

Hello,

I am a member of the State Bar of California, the Bar of the U.S. District Court for the Central District of California (San Luis Obispo, Santa Barbara, Ventura, Los Angeles, Orange, San Bernardino, Riverside Counties), and the California and National Associations of Realtors.

The retired shareholder can simply sell his shares. Typically, there are buyback provisions in a family corporation. If not, then if the retired shareholder cannot negotiate a buyback, then he may be able to sell the shares in the open market. If not, then the shareholder can sue the president for breach of fiduciary and assuming that there is actually misappropriation taking place, that would likely leverage a negotiated settlement.

Ultimately, a successful civil action against the president could be used to influence the county district attorney to bring criminal embezzlement charges against the corporation president. Most of the time, the DA won't do anything about these types of complaints, until a civil action produces sufficient evidence to demonstrate probable cause to prosecute. The reason is that the taxpayer money required for a white-collar crime investigation is usually more than the amount likely to be recovered for the victim(s). So, it's better for the victim(s) to sue, than to pursue criminal charges.

For the other shareholder who wants to continue the corporation, the only option is to raise the issue in a board meeting, demand that the president restore the unjust benefits received from the corporation -- and if refused, then sue for breach of fiduciary. Otherwise, the conduct will continue -- because that's what always happens in circumstances such as this.

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socrateaser
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 40,074
Experience: Retired
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