This is a question that comes up often when dealing with closely-held corporations and business disputes between partners. I will get to the answer (some discussion is required) but a key point to know is that even though you are a shareholder and owner your partners may still be able to fire you as an employee.
You are a shareholder of a New York corporation, business is growing, all of the shareholders also work for the company and things are good. A dispute arises or business gets a little choppy – can your business partners fire you? Well the answer to this question all depends on facts related to the percentage of your ownership interests, whether or not a shareholder agreement exists, whether or not an employment agreement exists and who has voting control.
If you are a minority or non-controlling shareholder and you do not possess a written employment agreement or shareholders agreement that guarantees your employment, the majority shareholders can potentially fire you. How would this come about? Well, the majority shareholders would potentially vote to terminate your employment and you could be left as a stockholder with no participation in the business that you still own a part of.
If you are a minority shareholder the best protection would be to negotiate and have in place provisions where your employment is guaranteed. However, if you are beyond this point (i.e., your business partners for no good reason have fired you and locked you out of your business) well there may be recourse to protect yourself. The recourse would be to protect your interests and rights through a lawsuit where you sue the majority shareholders for breaching their fiduciary duties and obligations to you. Basically you will be arguing that the majority shareholders are abusing their control and that by terminating your employment they have not acted to advance a legitimate corporate purpose but, rather, to benefit themselves personally.
As a minority or non-controlling shareholder it is critical to preserve and protect your rights through a thoughtful shareholder agreement. If you are faced with a more immediate issue (i.e., you are already locked-out) learn more about options that may be available to you by ordering and reading a free copy of Charles N. Internicola’s book The New York and New Jersey Partnership Dispute Guide.
Category: Partnership Disputes
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