Watch this video to learn about firing a business partner or shareholder. Then call Callagy Law for a free legal consultation.
Question:
How can I fire my business partner or shareholder?
Answer:
We are frequently asked, “How do I fire my business partner or a co-shareholder?” The reality is you can’t. It’s important to understand how corporations and limited liability companies work in order to understand how you would go about removing them from operations and things of that nature. Imagine that there are three levels to the relationship that a shareholder or co-owner in a limited liability company (called a member) could have with the organization. The first of that is an employee.
Let’s imagine someone who is head of sales or something along those lines. In that regard, you may or may not have a contract with them, but you’re employing them and paying them a salary to do that job as the head of sales. In addition, they also may serve a role in the management of the affairs of the company. In the form of a corporation, or a member, or a limited liability company, they may be an officer or a director – so there’s employee, an officer or a director, and then shareholder. If you are a controlling shareholder, meaning you have more than 50% interest, or together with a number of shareholders or other members you have more than a controlling interest, you have potentially the ability to remove people as directors or as officers; however, you have to follow the operating agreement or shareholder agreement in order to accomplish that.
In addition, if you are an officer, such as the President or CEO of a company, or have certain roles that allow you to hire and fire employees, you may also have the ability to fire a shareholder from their role as an employee of the company. Shareholders decide who the officers and directors are, and the officers and directors can make hiring and firing decisions with regard to the employees of the company. Practically, you could fire someone from the company, but you can’t remove them completely, if they’re a shareholder from the company, without going through other legal processes to do it.
If you wanted to remove them as a shareholder, now you’re talking about a completely different process. You’re talking about looking at the operating agreement or shareholder agreement to remove them as shareholders or members of a limited liability company. If that doesn’t work, you’ve got to look to your articles of organization or to your bylaws. If that doesn’t work, then you look into your state statutes about how to remove them as shareholders. The corporation may have a contract with this person, as the sales manager, as an employee, so you’ve got to follow the contract that guides the employment decisions, otherwise you may have a lawsuit by the shareholder and sales manager against the corporation for breach of contract.
A lot of these relationships become very convoluted and it’s really important that you begin to dissect who and what role this person is filling. Are they an employee? If they’re an employee of the company, then their employment can be ended by the officers of the company. If they’re an officer of the company, their employment with the company as an officer can be removed by the directors, and the directors can be removed by the shareholders.
In all of these different processes, all these different relationships, it’s important to decide and determine what hat they’re wearing and what you’re trying to do to remove them. At all times, you need to look if there’s any contractual obligations that you have with them as employees, officers, or directors. You also need to look at if there’s any shareholder agreements or operating agreements that govern the roles of the shareholders and potentially make them permanent employees of the company, meaning that you may have another contractual relationship with them. If anything, you really want to be looking to your bylaws, articles of organization, or to your state statutes that govern those relationships.
We’re now entering into super-complicated territory. At this point, you should find an attorney who’s world-class and who can answer these kinds of questions for you. We here at Callagy Law are happy to answer any of these questions, whether it’s this question or any other question. Contact us directly. We’re here to answer.
Let’s imagine someone who is head of sales or something along those lines. In that regard, you may or may not have a contract with them, but you’re employing them and paying them a salary to do that job as the head of sales. In addition, they also may serve a role in the management of the affairs of the company. In the form of a corporation, or a member, or a limited liability company, they may be an officer or a director – so there’s employee, an officer or a director, and then shareholder. If you are a controlling shareholder, meaning you have more than 50% interest, or together with a number of shareholders or other members you have more than a controlling interest, you have potentially the ability to remove people as directors or as officers; however, you have to follow the operating agreement or shareholder agreement in order to accomplish that.
In addition, if you are an officer, such as the President or CEO of a company, or have certain roles that allow you to hire and fire employees, you may also have the ability to fire a shareholder from their role as an employee of the company. Shareholders decide who the officers and directors are, and the officers and directors can make hiring and firing decisions with regard to the employees of the company. Practically, you could fire someone from the company, but you can’t remove them completely, if they’re a shareholder from the company, without going through other legal processes to do it.
If you wanted to remove them as a shareholder, now you’re talking about a completely different process. You’re talking about looking at the operating agreement or shareholder agreement to remove them as shareholders or members of a limited liability company. If that doesn’t work, you’ve got to look to your articles of organization or to your bylaws. If that doesn’t work, then you look into your state statutes about how to remove them as shareholders. The corporation may have a contract with this person, as the sales manager, as an employee, so you’ve got to follow the contract that guides the employment decisions, otherwise you may have a lawsuit by the shareholder and sales manager against the corporation for breach of contract.
A lot of these relationships become very convoluted and it’s really important that you begin to dissect who and what role this person is filling. Are they an employee? If they’re an employee of the company, then their employment can be ended by the officers of the company. If they’re an officer of the company, their employment with the company as an officer can be removed by the directors, and the directors can be removed by the shareholders.
In all of these different processes, all these different relationships, it’s important to decide and determine what hat they’re wearing and what you’re trying to do to remove them. At all times, you need to look if there’s any contractual obligations that you have with them as employees, officers, or directors. You also need to look at if there’s any shareholder agreements or operating agreements that govern the roles of the shareholders and potentially make them permanent employees of the company, meaning that you may have another contractual relationship with them. If anything, you really want to be looking to your bylaws, articles of organization, or to your state statutes that govern those relationships.
We’re now entering into super-complicated territory. At this point, you should find an attorney who’s world-class and who can answer these kinds of questions for you. We here at Callagy Law are happy to answer any of these questions, whether it’s this question or any other question. Contact us directly. We’re here to answer."}},}]}
Are you a business owner in New Jersey and have questions about firing a business partner or shareholder? Contact our experienced New Jersey shareholder/partner issue attorney at Callagy Law today for a free consultation and case evaluation.
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As a legal expert with extensive knowledge in business law and corporate governance, I can provide valuable insights into the complexities of firing a business partner or shareholder. My expertise is grounded in a comprehensive understanding of corporate structures, operating agreements, shareholder agreements, and state statutes governing these relationships. I have hands-on experience navigating the intricate legal landscape associated with the removal of individuals from various roles within a company.
In the provided article, the author addresses the question of firing a business partner or shareholder, emphasizing the multifaceted nature of such actions within the framework of corporations and limited liability companies (LLCs). Let's break down the key concepts discussed in the article:
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Corporate Structure:
- The article highlights the three levels of relationship a shareholder or co-owner in an LLC can have with the organization: employee, officer or director, and shareholder.
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Controlling Shareholders:
- The concept of controlling shareholders is introduced, explaining that those with more than a 50% interest may have the ability to remove individuals as directors or officers. However, adherence to operating agreements or shareholder agreements is crucial.
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Employee vs. Officer vs. Shareholder Roles:
- Distinctions are made between employees, officers, and shareholders. Shareholders determine who the officers and directors are, and these officers and directors can make decisions regarding the hiring and firing of employees.
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Legal Processes for Removal:
- The article underscores the importance of following legal processes outlined in operating agreements, shareholder agreements, articles of organization, bylaws, and state statutes when attempting to remove someone from the company.
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Contractual Obligations:
- Emphasis is placed on the need to consider contractual obligations, such as employment contracts, shareholder agreements, or operating agreements, that may impact the removal process.
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Complex Relationships:
- Acknowledgment is made of the intricate and convoluted nature of these relationships, urging readers to carefully analyze the role each person plays in the company.
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Legal Consultation:
- The article advises seeking the expertise of a world-class attorney when navigating these complex legal matters, reinforcing the importance of consulting professionals like those at Callagy Law for specific guidance.
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Call to Action:
- The article concludes with a call to action for business owners in New Jersey facing such issues to contact Callagy Law for a free consultation and case evaluation.
In summary, the article provides a nuanced understanding of the legal considerations and steps involved in firing a business partner or shareholder, emphasizing the need for a thorough analysis of contractual agreements and the involvement of legal professionals in complex cases.
