Full question:
Can a President of a 10 person S-corp in Georgia terminate his business partner who acts as the Vice President of the company? Both are (50/50) owners/shareholders but the Vice President no longer does his stated job and rarely comes to the place of employment. Both owners receive the same compensation although the President has run the company over the past 6 years while the other owner has slowly withdrawn. To date, the President has chosen to ignore this behavior for many reasons and has paid (the absentee owner) his full compensation. Recently, the President raised his salary from $155,000 (they both make this) to $200,000. This has prompted a lawsuit from the other owner/Vice President. The big question is if the President can terminate the Vice President (50/50 shareholder) as an employee of the company for not performing his job without 'approval' from the Board of Directors or Shareholders. Can he also 'Lower' his co-owners salary to get leverage in a possible buy-out? Optional Information: Cumming, GA (outside Atlanta), Georgia Already Tried: We have worked with a business lawyer (initial stages). The company by-laws are pretty generic and have no major changes to them - meaning they give the President powers to run the company subject to Board approval from what I can gather. The owners haven't held annual meetings and the Vice President has allowed the President to make all decisions regarding the company's course of action without dissent until this latest move when the President ultimately raised his salary in defense of the work load he has vs. the non-performance of any job function by the other owner and Vice President. The understanding is yes the President can fire the Vice President, but still will be obligated to pay him dividends or distributions as they are disbursed by the board/officers, etc.
- Category: Corporations
- Subcategory: Other
- Date:
- State: Georgia
Answer:
The answer will depend on the terms stated in the bylaws. Typically, bylaws require that an officer be removed by a vote of the board of directors. It's advisable to consult a local attorney to review all relevant facts and documents.
A shareholder may bring a derivative claim to remove an officer if management’s wrongdoing has harmed the corporation. This could include allegations of excessive salaries or failure to enforce corporate rights. Such a claim allows a shareholder to act on behalf of the corporation for the benefit of all shareholders.
In Georgia, each officer has the authority to perform duties as outlined in the bylaws or as directed by the board of directors (Ga. Code Ann. § 14-2-841). The president typically has the authority to conduct ordinary business without board approval unless stated otherwise. Officers must act in good faith and in the corporation's best interests (Ga. Code Ann. § 14-2-842).
A shareholder cannot initiate a derivative proceeding unless they were a shareholder at the time of the act in question and represent the corporation's interests adequately (Ga. Code Ann. § 14-2-741).
In summary, while the President may have the authority to terminate the Vice President, they may still be required to pay dividends or distributions as determined by the board.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.