Legal Question in Business Law in California

Re: 3 Directors/Shareholders. 2 are boy/girl friend, living together, essentiall

First, you should refer to California's business associations laws when addressing corporate governance of a California corporation. Your bylaws should spell out how the corporation will be governed and managed especially when it comes to voting rights, removal of officers, and compensation.

In general, their personal relationship has nothing to do with voting rights, compensation, or selection/termination of officers. If they want to risk bringing family drama into the boardroom so be it as long as they follow the corporation's bylaws when governing the corporation.

The question is really what do you want from this relationship. Do you want out? Do you want a compensation package? Do you want one or both of them out? Are your interests being met? Feel free to discuss further with me or any of the other attorneys at this site.

Re: 3 Directors/Shareholders. 2 are boy/girl friend, living together, essentiall

Share votes are counted without regard to personal relationships. Decide what you want and are entitled to out of the situation and take action through counsel. Contact me if interested in pursuing this.

Re: 3 Directors/Shareholders. 2 are boy/girl friend, living together, essentiall

First, California does not recognize common-law marriages.

Second, every share is entitled to the same voting power as every other share of the same class of stock, regardless of who holds it, when the votes are counted. So, if you own 100 shares and the other 200 shares of the corporation's voting stock are held by one person who votes against you, two persons who vote against you, or 200 holders of one share apiece who vote against you, you're outvoted 2-to-1 in all cases.

Finally, the relationships, if any, between shareholders has no effect on the per-share voting power.

Stock is voted by the person whose name appears on the corporation's books as the record owner. If one or more shares are co-owned, e.g as joint tenants, either joint tenant may vote the shares, but it's still one share, one vote and not one owner, one vote.

You may be confusing voting of shares with a principle for determining how many shareholders a corporation has, or to how many persons stock has been sold. Many tax and securities laws allow an issuer of stock to treat a married couple as one stockholder, or one purchaser of stock, for determining whether a maximum number of holders or purchasers has been exceeded. For example, if this couple were really married, the corporation would be treated as having 2 shareholders for purposes of determining whether it fit within the "S corporation" limitations. This has nothing to do with voting the stock.

There are legal principles that protect the rights and interests of minority shareholders; for example, if you have cumulative voting for directors, you could elect yourself to the board. However, sounds like you'd consistently be outvoted.

I sometimes tell clients that owning 49% of a two-owner small business is about the same as owning 1%. You'll be outvoted on everything, including dividend policy. Actually, it can be worse, because you could be taxed on 49% of the earnings yet receive no salary or dividend; also, holders of 20% or more may have to sign personal guarantees under various lease or loan programs.