Legal Question in Business Law in Washington

Re: Corporation Problems with Partnership

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Re: Corporation Problems with Partnership

I am assuming here that the officers are also acting as directors. That would be normal in a small, closely held corporation, anyway.

The secretary (an officer and 1/3 shareholder of the corporation, as I understand it) has a right to see the bank statements and the corporate documents. He or she does not have a right to be a signer on the bank account. If the president and vice president hold 2/3 of the shares (and 2/3 of the director's seats, I'm assuming) there is nothing to stop them from making the day to day business decisions, and also the major business decisions, unless the bylaws require more than 2/3 majority vote. Depending on what the bylaws say, the two majority shareholders may be able to divest the secretary of his or her officer position, directorship, and employment with the corporation, if any. They cannot take away his or her shares without following the process described in the shareholder's agreement (if any) or under the default provisions of the law (if no shareholder's agreement). The secretary's investment cannot legally be seized by the other shareholders and used for outside purposes, including starting another corporation that excludes the secretary as shareholder. The secretary's investment is not protected from being squandered by bad management within the corporation. Depending on how the bank documents read, the secretary may or may not be able to remove him or herself from any future bank debt. The secretary is already on the hook for any existing debt personally guaranteed.

The position of a minority shareholder (that is, one who does not hold enough stock to have voting power) in a closely held corporation is a difficult one. The secretary MIGHT also have recourse under securities laws (which apply to closely held corporations as well as publicly traded ones) depending on the cricumstances of the investment and the degree of actual involvement in the business.

The secretary does have rights under law, but exactly what rights depends in part on what the corporate documents say, and the circumstances of his or her involvement with the corporation. If the other shareholders are considering starting a new corporation with the corporate assets, the secretary might want to seek legal help quickly. It will be better to try to stop this before it happens than to unwind it later, particularly if new shareholders are pulled in.