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A shareholder of my company is wrongfully suing it, knowing that the company can't afford litigation. What options do we have?

Las Vegas, NV |

There are 4 owners total, 1 owner has demanded that the other owners give their shares of the company over to him or he wants the company to be dissolved. Of course we denied and offered other options for him to part ways with us, including offering him 3x the value of his shares, but he refused. Now he is wrongfully suing the company (that he's a shareholder of), knowing that the company doesn't have enough money for litigation, in the hopes that we will be forced to shut it down.

We can't afford litigation, but do we have any other options? Or is this guy going to get away with using the judicial system to do his bidding and take away our livelihood? I've read about summary judgment, motion to strike, etc, but don't know how they work.

Seeing the answers so far, it seems that it helps to mention that the company has been open for 4 months and is still in a startup phase, so while we absolutely planned to have a reserve set aside for emergencies such as legal issues, we have not been able to build it yet. All the owners available money has gone to start the company. Retaining a lawyer for counsel we can do, but retaining a lawyer to fight it in litigation we cannot do.

Attorney Answers 3

Posted

Motions for summary judgment are once litigation is far along in its process, and motions to strike are filed against pleadings early on it litigation. You need to ask your own lawyer, who will have reviewed the operative complaint, whether either of those procedures are appropriate.

I'm not clear on how you could afford an offer of 2x the value of someone's shares, yet not be prepared to hire a lawyer. You have no choice here. Your company's been sued, and it can't defend itself, it can only act in court through its own lawyer. Use Avvo's "Find a Lawyer" search function, or use your family and/or friends for personal references, and hire a business litigator immediately. They can explain your options, and the relative strengths and weaknesses of your and your co-shareholder's claims. The 1st thing your lawyer should look at is any shareholder's agreement, and whether shareholders have agreed to arbitrate any disputes. If you can demand arbitration, rather than civil court, that would save money and time.

Avvo doesn't pay us for these responses, and I'm not your lawyer just because I answer this question or respond to any follow-up comments. If you want to hire me, please contact me. Otherwise, please don't expect a further response. We need an actual written agreement to form an attorney-client relationship. I'm only licensed in CA and you shouldn't rely on this answer, since each state has different laws, each situation is fact specific, and it's impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue.

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Posted

A corporation or LLC cannot represent itself in court. Therefore, even a motion for summary judgment would have to be filed by a lawyer. This is not a wrongful lawsuit. In fact, the law provides for what is called "shareholder derivative" suits for violation of the terms of an operating agreement. You need an attorney to go over the alleged violation of the agreement and to evaluate your ex-partner's chance of success.

Your lawyer should evaluate the costs of litigation and how that factors into the decision to push forward to further litigation. Generally, a prudent company should have a legal defense fund available and insurance to cover most risk of liability. Our law firm does this type of business litigation and offers free consultations, so you could evaluate the costs before hiring.

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Posted

Sorry, but your choices are to do whatever you can to get counsel or the corporation is in default. it is really that simple. As to not having money for counsel, there are three other shareholders. They can't pool to pay an attorney? If this matters at all, they will do what they can to pay or lose. Good luck.

This answer is for informational purposes only and is not legal advice regarding your question and does not establish an attorney-client relationship.

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