A friend has set up a corporation with another person about four years ago. They had difficulties getting along from the very start and parted their ways.
My friend continued with the business on his own. The other guy was not involved, in fact, he was out of the state all this time.
Now he shows up. He says the corporation was never dissolved. He therefore is claiming 50% of the business. He happens to be the president of the corporation on paper.
Can this guy actually prevail legally? Can he claim part of the profits from the past?
You'd have to ask an attorney. My guess would be that he's perfectly entitled. He was never legally removed from the position.
Had your friend's business found itself in any legal trouble during this time the missing partner would have shared in the liability even though he wasn't around.
What was the agreement? If it said anything about both of you contributing labor and being compensated for that, he doesn't get his if he didn't contribute his labor. On the other hand, if you contributed a patent and some money, and he contributed some money, and ownership is supposed to be 50-50, then he doesn't have to show up at all.
So? I own stock in a lot of companies (especially indirectly through my 401K through mutual funds). I never showed up for any of them.
You say partner in the subject line and corporation in the text or your post. That's mixing apples and oranges. A partnership is not and cannot be a corporation and visa-versa. There are laws covering both, and they are very different. Also, most laws pertaining to businesses vary State to State.
I would suggest your friend seek out a local attorney.
So long as the corporation makes a profit, it probably doesn't matter to either that they get along.
A silent partner. The best kind, IMO.
Since your friend made no effort to remove the partner from the corporation, it's very possible this other person could prevail. It would depend on what the article of incorporation spell out. If this is a matter of great concern, recommend to your friend that he speak with a lawyer familiar with applicable law.
First you must establish if it is a partnership or a corporation. A corporation with only two shareholders is NOT a partnership. Laws differ depending on the type of organization it is.
IF it is truly a corporation and depending on the corporate charter, shareholders may draw a salary if they work for the corporation, but may not necessarily be entitled to a percentage of the profits. Profits from a corporation are normally paid out as dividends. Corporations do not necessarily pay out all profits in dividends. If his intent is to get out... wanting his half of retained earnings... well, he needs to find a buyer for his shares unless the corporate charter says that the corporation will definitely buy back his shares. If the corporate charter specifies whom qualifies as a shareholder, he may be stuck with the shares unless your friend wishes to buy them. If these things were not specified in a corporate charter, your friend did a poor job of setting up the corporation.
If it is a partnership, has he been given a K-1 every year to report his share of income for tax purposes?
Your friend really needs to consult a lawyer. There are too many variables to get a solid answer here. Beverly
Is this an accounting question? Clearly we could advise on how to your friend might invest the corp funds to leverage the hell out of the company. His partner might do just that very soon.
Nonlegal sense though, he owns half... does not matter if he has a title or works in the business. His corp charter is prob standard, he might want earnings past!
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here.
All logos and trade names are the property of their respective owners.