Legal Question in Business Law in California

Your situation can get pretty tricky and I would highly advise that you hire an attorney to look into your situation. Generally, dissolving your corporations will depend on the terms established on your company's corporate by-laws. So it would be a good idea to review that document. If you don't have by-laws then default California laws will dictate the rules of dissolution unless your corporation's state of incorporation is outside California, in that case the foreign state's laws will apply.

If default California rules apply, there is a way to dissolve the company if you own 50% of the company's voting shares. However, there are many factors to consider during dissolution and you should discuss this with an attorney. Starting a new business that competes with your previous business (if it continues to exist) is possible but this will depend again on the By-Laws and other agreements you may have with the other shareholder.

Again, I highly advise that you retain an attorney to assist you on this matter.

Kind regards,

Jim Betinol

My advice is somewhat different.

First, co-owners of a small business, including the co-owners of a corporation, are fiduciaries of one another and of the business. Starting a competing business would undoubtedly violate your fiduciary duties and could result in a lawsuit against you and your new business. I'm not saying that's a certain result, or even that you'd necessarily lose such a suit, but both are distinct possibilities. So, I'd advise extreme caution in abandoning ship to start a new business in competition with your former business.

What to do? I advise clients not to get into 50-50 deals other than marriage. In business, you need a tie-breaker in case of deadlock. Sometimes this means getting three guys together. Sometimes it means splitting ownership 51-49 or 99-1 or whatever. Or, often deadlock can be avoided by setting up tiebreaking rules in the bylaws or dividing responsibility (X handles sales, hiring and product design, Y handles manufacturing and finance).

If you're really stuck with an uncooperative equal owner, the Corporations Code contains some provisions for dealing with deadlock. See Corporations Code section 308.

The Corporations Code also has provisions for so-called "involuntary dissolution" of a corporation. This may be what you'll have to do. The provisions run from CC section 1800 through 1809, but note that 1800(a)(2) says such a proceeding can be begun by any shareholder with 1/3 or more voting power and 1800(b)(2) and (3) specify alternate grounds for dissolution, both of which seem applicable to your business.