Legal Question in Business Law in Massachusetts

Corporation Dissolution of Partnership

By relating the oral agreement you are already telling about a potential problem.

The options depend on the value of the business generated and the good will arising from this business.

With additional information, it would be easier to examine the options.

Re: Corporation Dissolution of Partnership

Frankly, if you don't observe the basic corporate formalities, you are inviting major problems.

What you have described is a mess. As a general rule, to obtain the benefits of a limited liability entity such as a corporation or limited liability company, it is important to follow the requirements, and extremely useful to create written agreements by which a business will be run so that everyone knows what the rules are. It saves tons of money and time down the road, as you may now find out.

Having said that, there are default provisions of 156D (the latest revision to the Massachusetts corporation law) which may be relevant. Of course, oral agreements cause all sorts of potential issues if there is disagreement as to what an oral agreement actually was.

There are too many other questions to be able to provide even a general response. It is not clear whether anyone has put money into the corporation, whether there is an assertion that personal services by one or more of the shareholders were to be the consideration for issuance of stock, whether there is value of the business as a going concern, regardless of cash on hand, whether any of the shareholders have personally guaranteed the obligations of the corporation, etc. etc. etc. You need to speak with an attorney, though there is potential conflict between your position as a shareholder and the interests of the corporation, notwithstanding your majority interest.

In the future, think twice about starting any business venture with others without first setting down in writing what each of you expect out of the business relationship, even if you don't want to have an attorney review it and prepare a formal agreement (much preferred). The time you spend at the beginning, and the obligation to actually set down expectations in writing will help to eliminate misunderstandings (or unfounded positions) when they become more costly to all.

You should speak with a business attorney at the outset, who can then refer to a bankruptcy attorney if necessary.

Re: Corporation Dissolution of Partnership

Whatever you do, tread these waters very carefully. I strongly recommend the involvement of an attorney and, short of that, recommend that you not act hastily or out of emotion.

In addition to the issues already addressed by others, as partners all of you have duties to each other of, including duties of loyalty, to act in the utmost good faith, to act fairly and not out of self-interest, and to make full disclosure of relevant facts to each other.

While you can still probably shed yourselves of the problem partner without violating these duties for his failure to perform up to understood expectations, without any written agreement, it is akin to walking through a minefield with no detector. Until you are free and clear of the partner, you do not want to run afoul of any duties still owed to him as your partner. If he is unhappy with your decision, you can bet that he will seek legal advice and, without a governing separation agreement, the inquiry will focus squarely on whether your partnership duties were violated prior to and including the separation.

Because there is no written agreement, this is a tinderbox waiting for a spark. I very strongly suggest you hire an attorney, and I am happy to step in. Even if its not me, however, you should seek counsel before taking any decisive action, unless you feel comfortable with the risks.