Legal Question in Business Law in California

You have a number of options, but for most you need an attorney. You need to confront them with the evidence and find out if they have a reasonable explanation. If not, demand the funds get restored. As a shareholder you have rights and can bring a derivative action against the company and them to force repayment. Other rights arise if you are a director, which gives you full right to inspection of all records. Perhaps they can fire you, but you are a part owner and can ensure that the funds are back in. What is more important is whether you want to remain as "partners" with these folks. As a minority, you can always get outvoted and will get the short stick, so why be partners with people who you cannot trust. Be grateful you found out their true nature and start over without them.

Are you an employee as well as a shareholder? Employees can be fired; stockholders cannot.

Based on personal experience, I myself would never be a minority shareholder in a small business corporation where I mistrusted the majority holders. The risk of it turning out badly is too great.

My advice, simillar to Mr. Richter's, is to bring all your facts to a business lawyer and get advice regarding your rights and possible remedial action, including but not limited to filing suit. Information that would be useful to an attorney would include:

1. Articles of incorporation and bylaws.

2. How much stock has been issued to each shareholder, when, and for what consideration?

3. Nature of the company's business.

4. Whether it has an operating history, including financial statements.

5. Who are the directors, and when and how were they (re)elected?

6. Dies the corporation hold noticed meetings of shareholders and directors?

7. Are minutes kept and distributed of such meetings?

8. Who are the officers, and how were they chosen?

9. Is compensation of officers reasonable in relation to their duties and the company's size?

10. What exactly do you believe they are doing wrong?