Legal Question in Business Law in California

Re: Corporation Breakdown

If your partner has sued you...you need to respond to that lawsuit. Otherwise, he can get a default judgment against you and get court order to sell corporate asset. Are you planning to file bankruptcy?

Re: Corporation Breakdown

You need to keep in mind that the corporation is not you, and you are not the corporation. The other individual is probably not your "partner" (although it's possible, I suppose, that you were partners at one time or that there was a partnership between you outside of the corporation). More likely than not, you and the other guy were/are co-promoters, co-founders, shareholders and perhaps directors.

Next, more likely than not, the employees are the corporation's employees, not yours; and the bills are the corporation's responsibility, and not the responsibility of either shareholder, at least with respect to the third party creditors. (There may be agreements between the two of you and/or the corporation assigning liability, but those probably would not give the creditors any rights.)

Stockholders of corporations are not the corporation's slaves, and unless they are under contract with the corporation to provide services, the stockholders are free to come and go as they wish, so there is strong doubt that "leaving you hanging" was necessarily improper, although it certainly may be if there were an express or even an implied agreement that he would continue to provide services to the corporation.

On the other hand, a suit to force you to dispose of corporate assets sounds highly questionable. Why is the suit against you instead of against the corporation? You don't have the power to sell the corporate assets. Does this corporation have a board of directors? Are the two of you the directors?

If you have been sued, you need to file a responsive paper, usually an answer, within the time specified in the summons, usually 30 days. Be sure not to miss the deadline, however improper the suit may seem.

Please note that it is difficult for me to give you an accurate and specific evaluation of your rights and the corporation's rights because so much depends upon factors that are not mentioned in your question, including:

(1) Whether the two of you are the only shareholders; (2) whether you are equal shareholders; (3) whether you are both directors of the corporation; (4) whether there are other directors; (5) whether each of you contributed all the capital you were supposed to contribute in order to receive the shares issued to you and otherwise to comply with your obligations (if any) to capitalize the corporation; (6) whether there is or was an agreement between you respecting your co-founding of the corporation, and if so, its terms, and whether it has been breached by the subsequent conduct of either of you; and (7) who are named as defendants in the lawsuit and what allegations are made.

I specialize in negotiating and if need be litigating matters of this type (between co-partners or co-owners) and would be pleased to give you additional free consultation if you can provide me with more facts.

Re: Corporation Breakdown

If the parties can't agree, you end up in the lawsuit each spending a fair amount of legal fees. Sounds like you need legal input and help, quickly, to try to resolve this without bankrupting everyone.