Legal Question in Business Law in California

Contact a business attorney. You will likely be able to force them to buy you out.

First thing you do is file embezzlement charges against the bookkeeper. Then you hire a business litigation attorney to file a lawsuit to force dissolution of the corporation. If you are in the San Francisco Bay Area or Sacramento, feel free to contact me for a consultation.

First, people don't become partners by co-owning a corporation. The two are maybe properly considered co-investors, co-promoters, etc., but calling the owners partners suggests that the business is a partnership, and it isn't.

Second, a corporation is managed by its board of directors, who must manage in accordance with the articles of incorporation and the bylaws. The starting point for determining whether the bookeeper's (or her shareholder husband's) action in giving herself this raise must be to see what these documents say about setting pay. Often, but not always, the bylaws will specify how pay levels are to be set, especially for insiders like stockholder-employees and officers.

If the articles and bylaws are silent on this, the authority to set pay starts with the board of directors, who may delegate the responsibility to departmental managers, etc., but in a smaller corporation, the board will usually control the purse strings pretty closely, including setting pay levels.

In a corporation with two shareholders, the Corporations Code requires that the corporation have at least two directors. I'm assuming the two co-owners are the only directors, which sets up a perfect scenario for deadlock at board meetings (and shareholder meetings). If the issue of paying her $850 a month instead of $500 had come up for a vote, there would have been a deadlock, and no action would have resulted -- net effect, pay stays at $500.

Assuming two directors and two shareholders with equal voting strength, I think deadlock is a certainty, and will probably affect other corporate business as well. The statutory remedy for breaking corporate deadlock is to go to court and have a judge appoint a temporary director (see Corporations Code section 308).

It is also possible to bring a lawsuit asking the Superior Court of the county where the corporation is headquartered to dissolve the corporation involuntarily (Corporations Code sections 1800-1809) or it can be done voluntarily (CC sections 1900-1907).

Finally, because of the sneaky way this seems to have been done, it is possible that the wife, perhaps in cahoots with the shareholder/husband, may be committing the crime of embezzlement. Your local cops and D.A. would probably prefer this be treated as a civil matter because they probably have their hands full with violent crime, but you may have an alternative to go to law enforcement rather than, or in addition to, bringing one or another actions in civil court under the Corporations Code or other law.

The corporation rules on how to do these things are in the ByLaws. In general, shareholders can call a special meeting, make their demands, and seek settlement. If that doesn't work, you can always file a lawsuit to enforce your rights. If the assets and value of the company are enough to justify spending attorney fees to do these things, and if you are serious about doing so, and if this is in SoCal, feel free to contact me.