California Family Law
Q.Currently I run a retail store that was given to me by my father. I am a bit confused by the way the business will be left/divided between my sister and I. He set up a trust that will disburse the shares into two trust, one for my sister and one for myself. Currently, my father and I are the elected officers of the corporation. He is the President/CEO and I am the treasurer and secretary, I believe. Outside of the trust, I own one share. My sister owns zero shares. What I am wondering is this....If i appointed three people on the board of directors that would vote the same way I would vote on matters pertaining to my business, would that be an easy fix to this dilemma? At the time of the event, there would be three BOD including myself, excluding my sister.
A.If the bylaws say that the board will consist of a specific number of board members, and if you need more than that number in order to comply with California law, the first step is to change the bylaw so that the right number is required. Changing the bylaws might be doable by the board, or it might require a shareholders vote. Do whichever is required by the bylaws. Then, if the bylaws permit the board to elect new board members, the board should do that immediately. If the bylaws say that board members must be elected by the shareholders, then the board or the president should call a shareholders meeting and get the proper number elected. If the new board members vote your way because that's what they believe is best for the corporation, then there is no problem. If the new board members vote your way even though they don't believe that is best for the corporation, then they can be, and should be, sued personally by the corporation. It is possible that the corporation could be forced to file that suit by any stockholder. Electing additional board members is necessary to comply with California law. But that doesn't change the terms of any trust. The trustee will still vote as the trustee thinks best for the beneficiary, and if you are co-trustee, you will (if you are wise) recuse yourself from all discussion of and voting on issues which involve a conflict of interest between yourself and the beneficiary. If you don't you could be sued. If that happens, the beneficiary will win. And electing new board members for the corporation doesn't create a situation in which your sister can be forced to take cash for her stock. That can be accomplished only in two ways: (a) a change to the trusts, (b) a contract signed by your sister.
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