He is the Pres and I am Secy-Treasurer. He will not sign a non-compete and is asking me to sell a portion of my shares or threatens to compete against the existing corporation if I do not. Doesn't he have a fiduciary responsibility to the corp to sign one? What are my legal rights? Would I have more power as VP? What happens if I agree (to make him happy and have a better working relationship) and become a 1/3 owner as opposed to a 50% owner. What happens if we can't agree and we are both equals? Can I ask for 50% voting rights and own 1/3 of corp? He has more responsibility than I do and I have offered to compensate him for it, but he wants absoulute control not money.
No one is obligated to sign anything. Now, his threat to compete against the corporation if you don't sell your shares is a more interesting question. An officer does have a fiduciary duty. One duty is the duty of loyalty, which includes the duty to not usurp corporate opportunities. If the tries to do that, then he would likely be in breach of his fiduciary duty. There may also be duties related to trade secrets and other issues, depending on the facts.
That, of course, does not remotely end the discussion. An officer can certainly resign and this officer could then establish a new business that competes against the corporation. As long as this does not breach fiduciary, trade secret, and other duties, there is no law that prevents a former officer from competing. You can't prevent that if you did not bother to sign a noncompete or shareholder agreement at the outset.
As to the shares, you could certainly transfer shares (this may or may not be a taxable event depending on how this is structured), but you could agree to a voting proxy to maintain control on voting matters. There are also other options.
In short, you need to hire a local business attorney now. You should have had an attorney involved at the outset and they would have drafted a shareholder agreement that would have avoided this dispute and the animosity that is now occurring. Because that did not happen when it should have, you need the involvement of an attorney now who can resolve this matter and get a solid agreement that you both can live with or you can likely just expect this venture to fail.
Look for AZ business attorneys on this site or through your local bar referral. 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.
In California, a controlling shareholder has a fiduciary duty of loyalty to the other shareholders. You need to consult an AZ attorney about AZ law on that point, but your man definitelyhas a fiduciary duty as as officer and director. Competition breaches that duty and you should be able to sue and enjoin him from it much as if he had signed a covenant not to compete. Being VP would not give you any more power. I suspect that if you give him control, your situation will just get worse. Increasing his compensation sounds reasonable. You can do your nonsymmetrical voting rights approach. You can jointly amend your Articles to authorize nonvoting shares. If you have say 10,000 shares each, the corp could issue 10,000 new nonvoting shares to him, so he owns 20,000 total shares and you own 10,000. He should pay fair market value for the shares. You would own 1/3rd of the corp but would have equal control. You will be facing deadlock. One legal solution is to ask a court to appoint a neutral provisional director to break ties. Or you could sell one share to a neutral person for the same purpose. You must consult an AZ attorney.
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
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