Legal Question in Business Law in California

Responibility of a minor shareholder to company liability

My husband has a business. It is an S corporation, has about $600k loan, very little account receivable. A 15% shareholder wants to resign the company. They have a "Shareholders Stock Restriction Agreement", it also defines 'payment of defferred compensation to terminated shareholder. Calculating by the given formula, his compensation comes out to be -80,000. Earlier, he has given $30,000 loan to the company. Company also owes him about $20,000 as back salary.

Question is that will it be legal to adjust his loans with the negative deferred compensation. Company is not asking him to pay the difference, just cancel all out. Please advise.

If the company were in good condition, he would have definitly asked for his deferred compensation, now can the company enforce the same rule on him while it is so negative.

Please advise. Thanks


Asked on 8/29/00, 6:18 pm

1 Answer from Attorneys
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Responibility of a minor shareholder to company liability

What is meant by 'resign the company?' Apparently the 15% shareholder is also an employee. What is the basis of the 'compensation' -- is it for personal services as an employee, or compensation for investing, etc.?

It would really be necessary for an attorney to review the entire document "Shareholder Stock Restriction Agreement" as well as other documents such as this person's employment contract (if any), the loan documentation (to see whether any personal guarantees are implicated), the bylaws, and probably other documents reflecting the relationships between the corporation and the various shareholders, officers and employees.

The dollar amounts involved here are large enough to warrant retaining an attorney to advise you. This is an area I specialize in, and if you are in my part of the state I would be happy to provide a free initial consultation.

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Answered on 10/03/00, 5:03 pm


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