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qwain76
11-06-2014, 09:05 PM
I own 33% of a small LLC business with other 2 people. In total we are 3 business partners (let's call us A, B and C where I am C). Our business (let's call it business X, a propery rental activity) is fairly profitable. My other partners (A and B) also own another business (let's call it business Y, a maintenance shop for lift trucks) with other people, in which I (C) am currently not involved. Basically I have no shares of business Y, which is not very profitable and having financial problems. I do not know for how long this business can last, being very poorly managed.

During a board of directors meeting of business X, my partners A and B propose that business X buys shares of business Y. In other words they want to move money from our good business X to the other weak business Y, leveraging the fact that they have the majority of votes in the business X board.

I myself, the poor partner C, do not agree with this decision, but I get screwed because I am minority and I am forced to accept this decision.

Is this legal? Can I file a lawsuit against the other partners?
If not legal, what is the name of this kind of illegal practice?

Thanks

Freelancier
11-06-2014, 09:48 PM
You need a lawyer. What they are doing is technically legal, but opens them up to a civil lawsuit for breach of fiduciary duty. They are using the company you own part of as a piggy bank for another company which may not be in the best interest of the company, so you have a claim that your lawyer could pursue.

You do realize, though, that if you go the lawsuit route, you're likely going to either have to buy them out, get bought out, or dissolve the company, right?

Paul
11-08-2014, 01:36 AM
You need a lawyer. What they are doing is technically legal, but opens them up to a civil lawsuit for breach of fiduciary duty. They are using the company you own part of as a piggy bank for another company which may not be in the best interest of the company, so you have a claim that your lawyer could pursue.


Absolutely agree! Dig out the operating agreement, there is a chance that certain actions require unanimous agreement or some other way to block it. Do get to the lawyer quick before they move the money.

smallbizfinancier
01-07-2015, 08:59 PM
Do you have any experience or knowledge on how business is conducted at Biz Y? That the business is underperforming could be a blessing in disguise, while it also might be an albatross.
If the flaws of BizY can be corrected with proper management, it might be a sound decision to be onboard with investing. Remember, many businesses that are underperforming get bought out-in fact, that's the best time to seize that opportunity. Buying businesses is akin to buying stock, you want to buy at a discount and sell for a premium.
That said, I would still share my thoughts and fears with an attorney that specializes in M&A.

Best,

nealrm
01-07-2015, 10:15 PM
I hope you talked to a lawyer and put a stop to the stock purchase. Since the stocks they are purchasing are owned by them, they are making an equity withdraw from your company. This is the same as if they voted to give each of them a cash bonus. You do not want to be in business with these crooks. Have a lawyer talk to a judge and have the sale stopped, then sue for the sale of the original company.