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Can I fire a shareholder and officer of a S Corp?

Houston, TX |
Filed under: S-corporation

I brought my friend into my business and formed a S Corp in TX I have 51% he has 49%. He has not performed up to my expectations. Can I fire him for not doing the job? Can I take back the 49% shares? The corp is not making a profit.

Attorney Answers 2

Posted

There are a lot of very specific facts that would need to be obtained before I could give a detailed answer. But generally, unless there is a shareholders agreement governing the entry and exit of shareholders, one shareholder cannot "fire" or remove another shareholder without their consent. A 51% shareholder could remove him from the Board of Directors, and the Board of Directors could remove him as an officer, and (subject to the terms of an employment agreement and applicable employment law) terminate him as an employee. A better alternative would be to approach him about buying out his 49%; since the corporation is not profitable maybe this could be done for a nominal sum. If you are thinking about re-starting the same business under a different name, or in a new corporation, be careful because you may have fiduciary duties to him as the majority shareholder of this corporation. Seek legal advice.

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Posted

In the absence of a shareholder's agreement, you cannot "fire" a shareholder. If you have an employment agreement with him, that would control whether he can be fired as an employee. I would approach him to buy back his shares for a small amount.

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