Corporate Strong Arm

What is the name of your state? NJ

My question is in regards to ownership and control of a Delaware-based S Corp residing in NJ. In the event that two partners raise concerns about a third what are the obligations of those two partners in addressing the needs of the third? In other words assuming two partners have stated their concerns internally but are choosing to not address the matter(s) externally despite a request by the third to use a third party mediator, what is their legal obligation to ensure that the rights of the third are not violated? Is it within the rights of the two partners to attempt to remove that person from their ability to draw income from the business if they simply choose to do so and what are the rights of the third partner? Is there anything that must be in writing to make any decisions on the company's behalf binding such as an operating agreement and what if one doesn't exist?

"My question is in regards to ownership and control of a Delaware-based S Corp residing in NJ. In the event that two partners raise concerns about a third what are the obligations of those two partners in addressing the needs of the third?"
*** There are none. Reason is that these are NOT 'partners' as you claim, but are instead 'shareholders'. As such, they have NO personal obligation at all to another shareholder.

"In other words assuming two partners have stated their concerns internally but are choosing to not address the matter(s) externally despite a request by the third to use a third party mediator, what is their legal obligation to ensure that the rights of the third are not violated?"
*** See above.

"Is it within the rights of the two partners to attempt to remove that person from their ability to draw income from the business if they simply choose to do so and what are the rights of the third partner?"
*** No. As shareholders they have NO personal obligation to other shareholders.

"Is there anything that must be in writing to make any decisions on the company's behalf binding such as an operating agreement"
*** Yes. There would have to be minutes of the corporate meeting where the eligible voting members (board, officers, etc.) committed the corporation to a specific action.

"and what if one doesn't exist?"
*** Then the corporation would be in violation of your states corporation laws and likely forfeit its charter.

If a company must forfeit it's charter what are the immediate implications and can the charter be reinstated?

If the primary shareholders are also the employees what are the legal obligations of the company if there is a desire to fire one of them and can that happen and how?

Can shareholders attempt to relieve the third from the position of employment if the shareholders themselves are also employees of the company and what are the legal obligations for escalating the matter since this would directly impact the third's ability to draw an income from the company? 2:1 that would seem to offer easy control over the third.

If two simply choose to disagree with the third (for whatever reason, maybe personal) is there any recourse or legal right of the third to arbitrate or have the matter heard outside the company (externally) where it can heard more objectively? Would the company be obligated to comply? What protects the third's right to be heard and their concerns addressed? If the opportunity to address the matter with an arbitrator or facilitator has been presented and the other two simply choose not use the opportunity in an attempt to maintain control over the third does the third have any recourse?

If the company has imbalances in the distribution of workload or accountability that is causing problems with the third party to carry more than their share is there any legal recourse to force the company to address the matter by way of audit or other? How is the matter of one's rights protected from being forced into a position where they are likely to fail and subject to further scrutiny?

Thank you for your comments.

"If a company must forfeit it's charter what are the immediate implications and can the charter be reinstated?"
*** Most states provide for a forfeited charter to be reinstated if the at fault condition is resolved. I suggest you contact your states Secretary of State (or equal) to see what may be available.

The remainder of your questions have to do with shareholders and employment issues. They can be answered collectively in that there is NO corporate obligation as to employment by shareholders. Simply, they can be hired or terminated without any consequences as a shareholder.

It is clear that this 'business relationship' has problems and, apparently, that the corporation management has no idea how to operate a corporation or its legal obligations. I strongly suggest that the corporation develop a business relationship with a local attorney who could review the circumstances in full and advise what rights or obligations the corporation has, if any, to the individuals.

I've been in contact with the secretary of state but they also have advised to speak with an attorney. Small business owners do have the burden of learning as they go along. That's just how many people have to learn the ropes. I doubt this is that uncommon particularly with start ups under 5 years. Regardless it's helpful to hear someone else's opinion on the subject, though the advice is a bit frank.