My former business partner is suing me under the name of our Cal. S corporation. We are each 50% shareholders. I have been striving to dissolve the relationship, but he's using the corporation to sue me for the assets—which were my property that I brought to the corp. He did not meet his obligations per our agreement, so I began to sever the relationship. Can I challenge his use of the Corp as the Plaintiff?
Your fellow shareholder (not “partner”) is suing you in the name of the corp, which is called a “derivative action” because it is derived from the corp’s right to sue a director or officer for wrongdoing against the corp. You have not told us how he alleges that you have damaged the corp, but he must have made such allegations or he could not maintain a derivative action. Without knowing what he alleges you have done to damage the corp, we cannot tell you how to challenge his use of the derivative form of action. Have you done a deal with the corp where you sold at too high a price or bought at too low a price? Have you taken funds from the corp without his approval via Board action? If you contributed the assets to the corp, then they are the corp’s assets and no longer yours and you cannot just remove them, even if he did not meet his obligations per agreement. Your remedy is to countersue for his breach of obligations. If he has filed suit, you must hire a business litigator to defend yourself, rather than trying to rely on a pro bono Q&A service.
DISCLAIMERâ€”This answer is for informational purposes only under the AVVO system, its terms and conditions. It is not intended as specific legal advice regarding your question. The answer could be different if all the facts were known. This answer does not establish an attorney client relationship. I am admitted only in California. (Bryant) Keith Martin sbbizlaw.com
Anyone can sue or be sued in California. The validity of lawsuit is determined by the courts, and not by an AVVO answer.
This may very well be a corporate deriviative action against you.You cannot unilaterally decide to sever a corporate relationship. California corporate statutes provide for the dissolution of corporations, if you have attempted to sever your relationship with the corp. without filing a lawsuit r strictly following the legally required corporate formalities, you may have caused the suit to be filed against you. This is a very serious matter that you need to address in the proper forum - the court where you are being sued.
You now need to hire a business litigator immedtiately in order to 1) protect yourself 2) assert your rights, and 3) legally dissolve the corp.
Phillip M. Smith Jr.
Los Angeles Tax & Business Attorney
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is email@example.com.
Your question is very fact specific for a proper answer. What is without question is you need to hire a business litigator. We may be contacted through out Avvo profile as can other very good Avvo attorneys.
The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.