Please help - I need legal advice quickly

[Lori]

Here's the situation...

My father and I own an s-corp together. It's a yarn shop. We bought it 3 1/2 years ago. It was dying a slow, painful death, but we felt I could bring it back. Since that time, I've devoted 100% of the work to it. He's cooked a turkey for a couple of events. THAT'S ALL. He's done NOTHING else. By the way, he's an active owner and we both own 50% of the shares. He loaned me the money for my half. He also invested in the store to get things going, but not nearly enough. He's considered that a loan. My shares are to be paid back through dividends, when they start happening. I've not taken a paycheck in 6 months, which I know will cause problems if we were to start taking dividends.

My father is broke. He has run himself out of money and is turning this into my problem. He's decided to sell some of his shares to complete strangers. Apparently they'll be passive partners. However, they have no interest in knitting or yarn. An accountant friend has suggested they may be doing it for a tax shelter to hide some money and that I should get out if they're brought in.

My father has turned this into an all-out battle. He's making ridiculous demands at a time when he knows I can't do it. He's completely aware that one of our best instructors just left and may be taking her students with her, we're on Main Street and it's completely torn up for another 5-6 months, AND I'm supposed to leave for the NG on Saturday.

He's made threats, personal attacks, and demands for information. He demanded copies of tax returns, but insisted I pay for them or I "won't be a happy girl." I made them today. Tonight we received another email stating that he will "require" tax returns and the books by "this Wednesday, 6/11/12." By the way, today is the 11th. He knows I don't have time to do this.

As an active partner with the same amount of stock as I, does he have the right to make such demands? If so, does he have to give me a reasonable amount of time in which to produce what he wants?

Most importantly, do I have the right to stop working for the shop? I'm done being treated this way. He's destroyed me...

Please, please help me.

[lawdogg]

Lori, I can't offer legal advice, but I can suggest you look first to your articles of incorporation (and By-Laws if written) and then to the Business Corporation Act (BCA) of the State of incorporation. I imagine you will find your answers very quickly.

[Emilie@GZP]

I'll be happy to talk with you about this Lori at NG. I don't have a legal background, but experience with a very similar situation. If you can't wait that long, call me anytime during the day at the shop. (610) 438-0439. I'm around, probably playing bejeweled or something

[UTRacerX9]

Lori, I can't offer legal advice, but I can suggest you look first to your articles of incorporation (and By-Laws if written) and then to the Business Corporation Act (BCA) of the State of incorporation. I imagine you will find your answers very quickly.

Ditto. Check the documentation regarding the S-corp. You said you have not taken a paycheck for 6 months. So, that entails that you were taking money for at least 3 years out of the 3.5 that you've been operating. That is important, because if you were to be paying for your shares through dividends, if you've been taking a paycheck in the past that money could rightly belong to him, since he loaned you the money for your half. Without knowing anything else about what documents you may have signed or agreed to, any advice we could give you on this site will be limited. On a bright side however, I doubt that anyone looking to buy his shares is looking to hide money in the finances of a yarn shop in Michigan. The downside of that is that it sounds like your father has not been getting paid back any money on his investment... and if he sells his shares, the new owners will likely start seeking compensation, which will just further decrease any cash flow you have now.

Best advice I can give is to take your documents to a lawyer to see what exactly is spelled out and who is liable for the assets/debts of this business. Even though you may be half owner, it seems to be a technicality if your shares aren't paid until you've received dividends. If a dividend has never been declared, then your father may be 100% the owner in the eyes of the law.

Good luck Lori.

[Boost4VR4]

If he has exactly 50% of shareholdings in the company, regardless of any additional loans, they do not count unless those loans are in writing or otherwise stated.

Regarding the finances, if he hasn't done anything for the company, then it is his duty, as a partner in your business, to accept the exact same responsibility for the actions of the company. If the company succeeds or fails, it is equally the partners' fault. The issue is nonexistent, if your father is concerned about losing any more money in his shares, it is his duty, as a partner, to ensure that he willingly accepts this fact and if he does not want to participate in the actual real business aspect of things, then my suggestion is that you buy 1% of shareholdings so you have the majority of the shares. In the event things go south with the partners, you are at least in a position of greater majority.

[Lori]

There is a difference between a salary and dividends. The salary was agreed upon, since I'm doing all the work. I also didn't take nearly what he agreed to. If he's 100% owner, then that's even better. I can walk away and not worry about it at all. Not my problem. His choice. He certainly can't run it.

[Emilie@GZP]

You can walk away if you want. There are ways to absolve yourself from any future responsibility. I know that is something you do not want to do though... but you CAN.... if you WANTED.