How does one remove the president of a corporation?

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Latest post 03-10-2011 11:48 PM by Drew. 2 replies.
  • 03-10-2011 10:38 PM

    How does one remove the president of a corporation?

    Greetings all! I hope I can get some much needed insight into the following matter:

     

    In 2003 I went into business with my father, we started an S Corp. When we filled out the articles of incorporation and the shareholder's agreement, he turned to me and asked that I give him an additional 25% of my shares, being that he was close to retirement age and the company will be "all mine in just a few years". My 1st mistake was that I foolishly agreed, he has 75% of shares to my 25%. My 2nd mistake, and the most critical, was not having a written agreement regarding our duties and compensation plan, after all, it's family we're dealing with, right?

    Bottomline, the old man, in his capacity as corporate president, has made poor decision after poor decision that has almost cost us our business on at least 3 occasions! The decisions have been made unilaterally by him and they have hurt the company badly each time. We almost closed in 2008 and 2009, but thankfully were able to keep the doors open and actually had significant growth in 2010, with the help of the tax credit program developed by the stimulus package. ( few industries were benefited, ours was one). We doubled our sales in 2010 in comparison to 2008 & 2009, but would you believe that 60 days into 2011, the company is broke???

    How you might ask after doubling sales? Well for one, the "president" is obsessed with becoming a "national company" and believes all the jive he's told by advertising sales people. So he's purchased loads of marketing in the 1st two months of the year, when people don't buy anything in our seasonal business. Secondly, he's paid himself a boat load of $ in the latter part of the year and is basically using the company checkbook as his own piggy bank! Sad to say that with over $3mil in sales, we can't buy the materials to fabricate and fulfill our work orders to our customers, who have put deposits down toward these products & services!

    Long story made short(er)- we can impeach the President of the country for not following the laws and best interests of the country, how can I impeach this irresponsible delusional jackass? Isn't there a fiduciary responsibility of an officer of a company to act in the best interests of the company and not make exorbitant payments to personal credit cards, luxury vehicles and dining clubs from the company bank account? I want to save the company that I've been the main work horse in building, but I fear that when the crap hits the fan, it'll all be lost due to his poor decisions, delusions of grandeur and irresponsibility! Thanks for any good legal advice!

     

  • 03-10-2011 11:34 PM In reply to

    Re: How does one remove the president of a corporation?

    Unfortuantely, you made significant mistakes when you set this company up. He owns a majority of the shares. My bet is that the corporate charter and by-laws were very basic boilerplate forms that included no provisions for protection of minority shareholders, and that your shareholder agreement provides little protection for you either. You violated a key rule that I tell all my clients to follow: get rock solid agreements reviewed by your own business lawyer for every business you enter, even with (and perhaps especially with) close friends and family members. Never assume that because you are friends and family that they'll do right by you when there's signficant money on the table. I've seen so many people make that mistake and not consult their own lawyer when setting it up, and then later when there is a disagreement or problem, they find they are basically SOL.

    The law generally imposes a fiduciary duty on officers/shareholders to act in the best interests of the corporation. But simply making bad business decisions is not a breach of that duty; the failures generally have to be either true recklessness or involve conflicts of interest, etc. Moreover, the remedy for the breach is generally to sue for the damages caused. It's more difficult to initiate an action to force the company to remove him as president when he's the 75% shareholder. You'll need to visit a lawyer that litigates corporate law matters in the state where the company is incorporated to review the situation and advise you of your options. Note that it may be quite expensive to litigate this against your father, and he likely can use corporate funds to pay his end of it.

  • 03-10-2011 11:48 PM In reply to

    • Drew
      Consumer
    • Top 10 Contributor
    • Joined on 03-30-2000
    • PA
    • Posts 48,968

    Re: How does one remove the president of a corporation?

    Unless there is a noncompete clause--it might be simpler to go 1 mile away and create a new near clone firm?



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