I might have done a bad thing and would like to know what is legally possible of the other person (lets call this person ‘person A’).
Person A and I started a NYS subchapter S corp, we set it up as I hold 50 shares of stock, person A holds 50 shares, and 100 is held ‘in reserve’ by the company. We elected our officers and both were on the board of directors. Last year I persued other interest while person A ran the corp.
This last shareholder election I didn’t seak a set on the board of directors. Now I suspect person A will try to take control of the company. Can person A authorize sale of stock (from treasury) to himself, thus giving him controling interest Person A is also an employee of the company?
I’m not worried so much about person A not paying dividends, as it the right of the BoD, just I want to know if I risk loosing control of the company.
If you own 50% of the outstanding shares, I don’t see how he could authorize a sale without your consent, unless your company’s bylaws say that he can. Obviously, consult a lawyer and whatnot. There’s no hard-and-fast answer to these types of questions.
As a New York lawyer who practices in this area, my answer is: It depends. Some factors that may be relevant are what the certificate of incorporation, bylaws and shareholder agreements say; whether there independent directors on the board; and the manner in which the other shareholder would attempt to take control. Even with answers to all of these questions, there may be ambiguity in the answer and, if the other shareholder attempts to gain control, litigation involved.
Unfortunately, this is not the sort of question that can or should be answered on an internet message board. You should consult a New York lawyer who will be able to answer the question based on your specific situation.
I will say that if you don’t have a shareholder agreement to protect your rights, it is important to keep a seat on the board. Sorry I couldn’t be of more help.