Is it legal for a CFO of a company to tell a 25% owner of the company, who is handicapped, that they are fired and will not receive monthly income anymore?

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Is it legal for a CFO of a company to tell a 25% owner of the company, who is handicapped, that they are fired and will not receive monthly income anymore?

Asked on January 16, 2016 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

First, forgot about "who is handicapped"--that has no bearing on a dispute among owners of a business.
In terms of whether or not this can be done, first define what you mean by "fired." A minority owner's ownership interest (that is, the 25% of the company this person owns) cannot be taken away from him or her, unless there was some agreement in place allowing the majority owner(s) to require the minority owner to sell his/her interest on demand.
However, if the minority owner was also an employee of the company as well (e.g. a manager), then if the CFO either is the majority owner or has the support of people owning more than half the business, the 25% owner can be fired from his/her position.
Next, define what you mean by not receiving monthly income:
1) If you mean salary or wages from working at the company, then if fired (see above), he she would not receive it anymore.
2) If you mean some stipend or other monthly payment which is not the  25% owner's pro rate (i.e. 25%) share of distributions which are in fact made by the company, then yes: the company could decide to not make regular monthly payments to owners (in which case, no owner would get a monthly distribution); or if the 25% owner received some payment that the other owners did not, could cut off that special payment.
3) But if you mean the minority owner would not get his or share of any distributions of profit to owners--no, that is not legal. As a 25% owner, if there is a distribution of the company's profits or proceeds, he or she has to get 25% of the distribution, by virtue of his or her ownership. If the company makes a distribution to other owners but not the 25% owner, that would be illegal, and the 25% owner to bring a legal action t get his or her pro rata (25%) share of the distribution.


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