We have five partners who started a company 3 years ago but did not complete the corporate entity properly (no annual minutes filed, no shares issued, etc.). One of the partners is no longer cooperative. What options do we have to complete/fix our corporate status (if any)? Do we need to dissolve the corporation? Can the remaining members simply vote this member out? He did not contribute any money to the corporation and did not meet any of his responsibilities while involved (which was for the first 6 months only). Any advice is appreciated.
One would have to know more facts but part of the answers is to be found in your bylaws, if any. You need to meet with a lawyer to see that you are not throwing good money after bad with this partner, nor encouraging litigation, the famous "lose-lose".
Probably those who wish to continue need to re-start, this time with an attorney. Make sure you consider a buy-sell agreement since your securities (stock/membership interests) have no public market in the event of death, disability or retirement, and there should be a right of first refusal. Consider a management agreement so that everyone knows what their responsailities are and what financial and legal reprocussions will occur if they don't fulfill their obligations.
With fees spent on a CPA and attorney up front, you will save in the future with a team that already knows you. Wish you were in LA!
The above is general legal and business analysis. It is not "legal advice" 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.
I agree with Attorney Doland but, with my curiosity piqued, I must follow up something in your question:
You referred to status being "surrendered and under revocation". I find this curious because:
- I cannot recall having seen that status.
- Surrender refers to foreign (other-state) corporations that are registered in CA.
You definitely need to retain a business lawyer to help you resolve your problem.
This information does not constitute legal advice and does not establish an attorney-client relationship.
You should speak with an attorney to fully asses your situation.
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First, it is important to understand that any attorney who might assist you with this matter will have many questions. However, I will do my best to outline some of the issues for you:
- Did the incorporator appoint a director? If so, the director may or may not have adopted bylaws. If bylaws were adopted, then the bylaws should deal with how this matter should be resolved with the partner. If the incorporator did not appoint a director, and we have no shareholders, no directors were validly elected; thus, no bylaws were validly adopted. That means that the matter will be resolved per the California Corporations Code.
- Without the issuance of shares, adoption of bylaws, or valid election of directors, the partners may have a problem with the personal liability protection they sought in forming the corporation.
- You do not "need" to dissolve the corporation, but if no shares were issued and presumably no directors validly appointed, it may be best to do so. Much will depend on whether the company has good-will that the partners desire to keep.
- Is the agreement to contribute money and perform duties set forth in writing? If so, the partners may have a civil remedy against the non-paying/performing partner.
- To restore the corporation to active status, the partners must complete a corporate "revivor". This may require the involvement of a CPA and business attorney, depending on the circumstances. However, I am not personally familiar with a suspension on the basis of "surrendered and under revocation". Is this a California corporation?
- Be careful just voting the partner out. Voting rights are derived from bylaws or statute. You should know which before taking action.
Ultimately, this is quite a concern for you if you are serious about the business. The matter must be resolved thoughtfully and methodically. I strongly advise that you speak with a business attorney so that you can receive personalized advice and counsel, and restructure the business appropriately.
This response is not intended, nor should it be construed as legal advice. Any information provided is for educational purposes only. To schedule an appointment for an attorney-client privileged consultation, contact me at 530-231-4949 or visit our website at www.lowenthallawoffice.com. The exchange of communications through Avvo.com and similar social media does not establish an attorney-client relationship with me or my office. Thank you.