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Ask a Lawyer -- Corporations
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Brought to you by MedLawPlus.com®-- Corporate Bylaws and initial board of directors resolution Price: $14.99 (free trial) |
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Question: Three years ago we formed a Sub S Corp with three equal shareholders/managers. Unfortunately, other than agreeing verbally to equal pay, we have no buy-sell agreement nor employment contracts. We do have By-Laws which state that any officer may be removed with our without cause. Now, two of the three shareholders/managers wish to remove the third manager/shareholder from his officer position. Absent any agreement other than our By-Laws, can we in fact remove this officer (he is the President, in title only, and is significantly underperforming)? If so, is there any recourse on his part for his removal? If the two shareholders comprising a majority can remove the third minor shareholder from his officer position, with regards to the third shareholder’s shares, if he chooses not to sell for a reasonable fair market value, can the two majority shareholders diminish his percentage ownership by issuing bonuses in the form of additional shares as they continue forward with running the Company? Response: To obtain an opinion upon your specific case, it is necessary to take all documentation and other facts to local attorney experienced in corporate law. I can, however, make a few comments on the facts given. Generally, the directors have the authority to appoint and terminate the officers of the corporation. I assume each of the three shareholders is a director. If your bylaws provide for majority vote on the appointment or termination of an officer, then, yes, two shareholder-directors should be able to vote together to remove an officer. Can the majority force the removed officer to sell his shares? Absent an enforceable buy-sell agreement among the shareholders, I think not. The removed officer would remain a shareholder unless and until he voluntarily agreed to sell his shares. As far as issuing additional shares to dilute the removed officer, this is legally troublesome. An employee stock ownership plan may be a vehicle to accomplish this end. Submitted: 01/10/2008; PJ, California Response: 01/12/2008; JJR Add A Comment |
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