Legal Question in Business Law in Washington

Hello all - thanks in advance for your help! I have a major issue with a partner that recently resigned as an officer and wants to make my life difficult. Sorry for the lengthy explanation but I believe I had to give some background.

Company A: Washington State, S-corp, two partners (50% shareholder each), We operate in the professional services industry (we do staffing for a fortune 50 company as well as operate our own personal contract with the Fortune 50 Co.). Aside from out personal contract for services with Fortune 50 Co. we currently have 4 additional contracts. In order to do business with this company, a preferred vendor account needs to be in place, and these are not easy to obtain.

My partner recently resign as an officer and from the board of directors of Co. A. While he was still an officer of Co. A, he opened a parallel company fully own by him (Co. B) on the same line of business and have tried to steal contracts from Co. A. by contacting contractors and hiring managers to inform them that Co. A was breaking up and alleging that the contracts might not open in time (This is not true).

I have brought 90% of the revenue to Co. A and I dont want to let it die as I ran my own personal contract with the Fortune 50 Co. We make a really good leaving.

I have the feeling that he wants to shut down the company and put Co. A out of business - he has some major personal problems on his life and is not really happy. I made him a generous offer to buy him out and he wont take it. It has gotten pretty ugly and personal.

We have consulted Co A lawyer and now as the only officer I have full administrative and operational power over Co A. I'm in the process of closing his bank accounts, line of credit and credit card as well as all access and logins and passwords to various web sites required to ran the Co A. He has no outstanding debts.

Questions:

1 - Can he unilaterally shut the company down? What sort of trouble can he create for me that would not allow me to ran the company?

2 - What legal actions can I take and how successfully I would be against him opening a competing business while he was an officer of Co A? I have evidence of him contacting hiring managers with SOWs from Co B.

3 - Can he elect himself as an officer of Co. A again? I have the feeling that this would be illegal as he is an officer on Co. B.

I'm currently opening a separate Co and obtaining a vendor account with Fortune 50 to ran my own personal contract and possibly take all 4 other contracts over if Co A goes down.

4 - What could he do to me if this is the case? I would only do this when Co. A is dissolved by his actions - I think in this case contracts will be up for grabs and I should be able to re-open them under the new company. Is this right?

Any advise for me?

Thanks again!


Asked on 7/08/10, 7:58 am

2 Answers from Attorneys
Kevin B. Murphy Franchise Foundations, APC

Any attorney will say a personal consultation is required after a full review of all facts and circumstances - this is not a simple bulletin board question. It seems like ;your "partner" usurped economic benefits and information belonging to Corp. A, and he can be sued for this. His trying to shut down Corp. A would open him up to further liability. To shut down any company, a vote of the majority of shareholders is usually necessary - sometimes even a super-majority vote. You need to have a legal review of your bylaws, etc. There are numerous, complex issues here. Consult with an attorney in your area for specifics.

Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise

Franchise Attorney

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Answered on 7/08/10, 11:15 am
Susan Beecher Susan L. Beecher, Atty at Law

It is helpful that you give as many details as you do, but there is actually more to know before you can really choose a direction. This is a complex situation and the devil is in the details. You mentioned that you consulted "Co A lawyer". If that attorney is still representing the company (and you in your position as the remaining officer of the company), then that attorney is probably in the best position to guide you further. If that attorney has decided there is a potential conflict of interest, you may need to find another to help you.

In short, what the other shareholder is doing sounds to me like something he can be sued for. He is misappropriating the company's trade secrets and breaching whatever fiduciary duty he had as an officer of the company.

I would just caution you to take the high road and do exactly what he is doing, but with a Company C. Find an attorney to help you with this is the present attorney cannot.

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Answered on 7/08/10, 1:48 pm


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