Legal Question in Business Law in California

Re: how do i go about removing myself from a corporation

This is a difficult situation in which many minority shareholders finds themselves. Unfortuantely, simply walking away is not really an option under the Corporations Code. However, there may be provisions in the bylaws or in a shareholders' agreement (if one exists) that may be helpful.

Also, there are various legal claims you could assert including claims against the majority shareholders and/or an action to wind up and dissolve the corporation. Without more facts, it is difficult to provide more analysis. Feel free to call or write if you have further questions.

Re: how do i go about removing myself from a corporation

Contact the Secretary of State to determine if there is any form you could file to dissasociate yourself legally- are you listed as an officer or director too ? You may need to file an action for dissolution and indemnity against the majority to indemnify you from the claims of any creditors. You can consult the by-laws or other corporate records to see if the issue is addressed. This is only a preliminary statement, we will need all of the facts to make a full opinion. Thank you. www.natebernsteinlaw.com. [email protected].

Re: how do i go about removing myself from a corporation

First, there are statutory procedures for removing yourself from the board or from an officer position. This should be your first concern, especially being a board member. See Corporations Code sections 305(d) for directors and 312(b) for officers. What you will see in the Code is, basically, that you can resign at any time by giving written notice to others, generally the secretary, chairman or president, but read the specific code language if you hold and of these corporate positions.

There is no way I know of to divest yourself of ownership of corporate shares, other than finding someone who wants to buy them from you. So, you may be stuck owning shares, but I don't see any risk to you there.

When a corporation goes out of business informally, or under the guidance of amateurs rather than careful lawyers, the ones who are most at risk are the directors. If they misapply corporate assets, as for example by cleaning out the bank accounts or selling the file cabinets, computers and desks and pocketing the money instead of paying the creditors, they are at high risk of creditor suits. Next in line would be officers, then shareholders who received distributions (such as dividends) at the expense of creditors.

Here, it sounds as though you're getting none of the loot from shut-down of the company. If so, I would say your personal risk is very low as a mere stockholder. As I said before, if you are or were also a director (or officer), and you shared in corporate assets at break-up time or while the corporation was insolvent, you would be subject to creditor suit in that capacity -- but not as a stockholder.

If creditors are calling you, you probably had some kind of active role in the business, apart from being a shareholder. You need to be concerned about what you did or didn't do in carrying out that role, and not about being a stockholder. As a stockholder, you are more likely to be a plaintiff rather than a defendant in any lawsuit over the winding up of the affairs of this corporation.

You have probably heard of 'piercing the corporate veil' - the concept is that if the folks running the corporation disregarded its separateness from themselves, so will the courts. This doctrine is sparingly applied, and rarely if ever will honest, non-wrongdoing stockholders be ensnared.