Can i fire a shareholder?

I went into business with a friend. He has 45% share, i also have 45% share and my Father has 10% but we appointed him Director. My business partner is not performing to our expections and the company isnt making enough money. How can i get rid of him?

Lancaster, CA -

Attorney Answers (3)

Charles Richard Perry

Charles Richard Perry

Business Attorney - Hollister, CA

I'm not sure what you mean by "firing" the shareholder. It could mean terminating his employment relationship or services to the corporation, it could mean forcing the shareholder to give up his shares, and it could mean something else.

Everything depends on the existing arrangement between the parties. The other shareholder may have arguments that he is not an "at will" employee, and can be terminated only for cause because of his ownership interest. That will make termination more difficult. There are also fiduciary duties between the parties at play here. If you do this incorrectly, you risk a lawsuit that would likely destroy your business. In a worst case scenario you could be named personally as a defendant.

You need to contact a California lawyer who handles intershareholder and interpartner disputes in California. Forcing an exit strategy upon this other shareholder is not something you can do yourself with a severe risk of it backfiring on you. Indeed, there are many of us on AVVO who practice in this area, and would be willing to consult with you and help you strategize the solution.

Michael Charles Doland

Michael Charles Doland

Corporate / Incorporation Lawyer - Los Angeles, CA

A Buy-sell agreement would have provided the definative answer. The bylaws may give some hint.
As my colleague points out, you could mean"firing" you could mean forcing a buyout of his interest. In either way, it will not be simple and the chances of getting sued if you do it wrong do exist.

One last comment, prior to litigation, try mediation, which attempts to find a win-win instead of litigation which is inherently win-lose.

The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may... more
Bryant Keith Martin

Bryant Keith Martin

Business Attorney - Santa Barbara, CA

I assume you have no employments contracts and no buy-sell Agmt. In that case, you and your father, as contolling shareholders, can control the Board and elect the President. Then you can fire any employee, even a shareholder. I suspect you want to get rid of him as a shareholder, which would be a good idea if you could. Unfortunately you can't unless you want to do a voluntary dissolution of the corp, which can be done by shareholders with 50% or more of the shares. Even then the court will decide how much you must pay him for his ownership interest in the corp. Consult a corp lawyer for details. Best approach is probably to offer to buy him out.

DISCLAIMER—This answer is for informational purposes only under the AVVO system, its terms and conditions. It is... more

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