Please help with newly formed S-Corp

[Bodee]

Hello - great forum - I am glad I found it.

I have a dilema here and could really use some sound advice.

Myself and an old friend (yea, its ugly already) formed an S-corp recently. I basically have the knowledge, experience, and contacts to base the business on, he was to offer some financial backing and purchase a building in which to operate after he sold some of his existing realestate.

There are a few things to know first off -
1.) We have not issued ANY company stock as of yet...
2.) No officers have yet been named
3.) My name on the bank account has title "President", his "VP"

Now, back to the story - I have generated a pretty substantial cash flow and revenue in which we are now operating on. It basically took off from square one and flourished. The problem arises when recently his sale of his realestate in which would have been used to purchase a building (we now rent) fell through.

This poses a few problems.

1.) His pay was to be rent for the building he provided, and some misc. things he did around the shop.
2.) He has no experience or knowledge in the field we are operating - he is basically dead weight drawing a $50k salary.

On top of this he works few hours - some days 4 hrs or less....he sits on the internet and watches his level 2 stock quotes....and he is a real pain in the rear because he assumes he is everyones boss....


Now - what are my options here? I generate the sales and all the money. He has not come through in his part of the deal - no building.

This is an S-corp. We have no agreements, buy-sell agreements, non-competes...nothing in writing.

Can I ask him to resign from the corp? Can I force him? Should I cash out the bank account and fold??? He is drawing way too much from payroll with nothing to back it. Does he have a fiduciary responsibility???

HELP!!!! I have worked very hard to get where I am - I need rid of this guy so I can move on.

THanks in advance!!

MBX5

[mylnjbiz]

I would spend the money and talk to a good lawyer to be sure you can do what you need to do legally.

Personally thinking, here are some creative ideas:

Start your own company by yourself, and then slowly build it up leaving him on his own? Take the employees and customers with you, assuming you don't have a non-compete agreement in place. (I've seen that before.)

Open a new office in Florida (or some resort town he would like) and send him there. Costs come out of his salary.

Ask him to telecommute more.

Institute a commission based salary that pays based on new sales (or some goal you can meet but he may not) to control his salary.

Promote him to a position where he can do less damage. (if possible?)

Open a new office and move the majority of operations there, but leave him at the "corporate" location to keep things in control, with a skeleton staff.

But, the point is, be creative.

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On a personal note - this is so sad. The last company I worked for before had a VP *exactly* like this. Everyone hated him. I left because of him, and started my own company.

[rubv]

Since you don't have any corp documents, the dispute is going to be decided pursuant to the corporate laws of your state. You need to make sure that you know the implications of those laws before you take action and plan accordingly. Definitely time to talk to an attorney. The attorney should be able to tell you the law and detail the exact steps you should take.

You are looking for a business litigation attorney.

[irmadhanio]

I agree with SDLawyer,

If you don't draw up documents for your corporation, you automatically default to the State's laws of incorporation. That being said, you are probably going to have to end up buying out his shares of the company - but make sure to see that business litigation attorney first!

Cheers and good luck,

As stated above, I'd consult with an attorney because nothing is set in stone. Your name being listed as President at the bank doesn't really bind you to being "President" of the company.

Have you filed any reports which list the officers, such as an annual report? If you get that and report yourself as all of the officers and him as nothing, you may have a better way of firing him I'd still recommend seeing the lawyer though.