Legal Question in Business Law in California

Re: CEO of 2 rival companies simultaneously?

This person is in clear violation, they will not be able to use company funds (your company) to defend himself. You may be able to stop the second company completely, be entitled to a portion of their profits, or other remedies.

Joel Selik

Re: CEO of 2 rival companies simultaneously?

Well maybe a conflict of interest and breach of fiduciary duties. Here's the problem he is going to be indemnified by the corporation and/or provided a defense by the corporation per the articles -- read the articles for confirmation. This makes it hard case to win, he will have a lot of litigation stamina.

Re: CEO of 2 rival companies simultaneously?

There is no law that makes it per se illegal to serve as president and/or CEO of two competing companies. However, it's a practical impossibility to hold such conflicting roles because of the fiduciary duties owed by officers and directors to the company and its shareholders.

You didn't say whether this gent (or lady) is also on the board of directors of one or both corporations, but that's likely to be the case from the other facts given. Holding directorships in two competing companies is probably "more unthinkable" that holding the presidencies, since the role of a president is often a bit less into polcymaking and a bit more into routine management, and also because boards of directors hire presidents and presumably have reasons for the selections they make.

Volumes have been written about the fiduciary duties of corporate directors and officers. They fall into two categories -- duties relating to loyalty, and duties relating to proper exercise of business judgment.

You didn't say anything about relative stock holdings, voting power, or your own position(s) with the first company, so I can't advise you with much specificity. Are you a director? Are there other directors? Do you have a founder's agreement? A buy-sell agreement? Is the board deadlocked because there are an even number of directors? Are the shareholders unable to elect a board that isn't deadlocked because there are only two, holding an equal number of shares? Do the bylaws have any applicable provisions?

Each of these questions, when answered, would point to one or more possible legal solutions.

Even if you are just a minority shareholder, you have a number of well-established rights established by the courts through decisions helpful to oppressed minority shareholders. See a business lawyer or contact me with particulars for a free e-mail or phone consultation.

Re: CEO of 2 rival companies simultaneously?

By the way, there is some director and officer conduct that cannot, by law, be the subject of indemnification, and without more facts and some research I would guess this falls into said category.