Legal Question in Business Law in California

Can a Co-founder be removed by another Co-founder?

My partner and I started an internet website. He owns about 51% of the company, I own about 46% of the company, with remaining shareholder owning 3% of the company. The board of directors consist of him and I.

We got into an argument (he secretly registered corporate assets under his own name, and claiming corporate IP as his own), and he tried to removed me, by saying that he held a shareholder meeting by himself at his house and passed the resolution to nullify all my shares. I then reminded him that is fraud, and no shares can be nullifed with approval from board of director. Then I received an email from his lawyer, claiming to represent the company. And a new bylaw is to be adopted, and 5 of his friends and family members are to be elected as new board members. Lawyer also informed me that my shares payments for the work I have done in 2008 have not been approved by the board of directors (who is suppose to be just my partner) so I now own 32% of shares.

Our company was out of funds thanks to squandering by my partner, I have never authorized hiring of a corporate lawyer using company's money to write threatening letters to me, a shareholders of 47%. What options do I have at this point?


Asked on 3/14/09, 8:15 pm

2 Answers from Attorneys
Terry A. Nelson Nelson & Lawless

Re: Can a Co-founder be removed by another Co-founder?

Either resolve it privately, or sue. No other options.

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Answered on 3/16/09, 1:18 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Can a Co-founder be removed by another Co-founder?

Your posting shows this majority owner is violating several law of corporate organization and conduct. An obvious violation is that a corporation with three or more shareholders must have three or more directors. Next, board meetings must be called with proper advance notice, per the bylaws. There are several more likely violations of a minority owner's rights, including unfair dilution of stock, illegal loans to directors, and others.

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Answered on 3/15/09, 4:36 pm


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