Can I be a shareholder of 2 corporations with similar bu

Asked about 1 year ago - New York, NY

I owned 1/3 of a S-corp (online retailer) with 2 partners for a year, I am the main person w/ knowledge to run the company with no paid. One partner contributed little and the other one contributed nothing beside showing up at the meeting. We have small amount of sales, company in red.

I would like to withdraw myself from the company and I told them I will no longer putting additional investment to the company. Company currently has debt about $10000, I told them they can go ahead to invest and dilute my share or buy me out but it seems like they are dragging it with no response.

Questions:
Is it legal to own 2 corps with same business model?
Can I withdraw myself from the corp without their approval even with debt?
Can I sue them for wages?
Negative effect to keep my name there?

Thx

Additional information

I am planning to start with my own company (Online retailer) in January 2014

We do not have any agreement whatsoever, it sounds like I can just quit it and restart fresh.

Attorney answers (3)

  1. Richard J. Chertock

    Pro

    Contributor Level 18

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    Answered . Mostly this depends on whether you had a shareholders agreement and or a buy sell agreement. If not, then you would be free to surrender your shares, withdraw from the company, resign any offices you hold and open your own business. The company is in debt so there is really nothing to be bought out of. You can also sue for dissolution to dissolve the company. Since you are an owner and don't seem to have any agreement you can not win a suit for wages. As to debt you could be liable if there were any personal guaranty of the debt. You should not leave your name as a shareholder as future liabilities can arise for numerous things like taxes or if the remaining partners engage in some illegal activity. Best solution would be yo close the business file a final tax return and start out again on your own. It is situations like these that make it necessary to have a shareholders agreement and a buy/sell agreement prior to opening any sort if business with any partners. You should consult with an attorney and a good CPA before opening any new business.opening any

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  2. Mona R Conway

    Contributor Level 11

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    Answered . I agree with my colleague, but I would like to answer your specific questions directly:

    Is it legal to own 2 corps with same business model? YES (Unless the bylaws of one company says, "No").
    Can I withdraw myself from the corp without their approval even with debt? You may need approval as a shareholder; as an officer, you can just resign. You can also bring a dissolution action (court approval, basically).
    Can I sue them for wages? Doesn't sound like it.
    Negative effect to keep my name there? Yes: see my colleagues answer.

    Mona

  3. Kevin Matthew Sayed

    Contributor Level 13

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    Lawyers agree

    1

    Answered . Mr. Chertock has given you a nice appraisal of your situation. You can certainly leave and start a business with a same or similar business model unless prohibited by any prior agreement (usually this is done in a shareholders agreement).

    Note, a dissolution of the corporation can at times trigger deemed sales under numerous IRS provisions of assets held (inventory for instance or equipment) and you may have issues with certain debt forgiveness income. Both the deemed sale and debt forgiveness on dissolution can trigger issues to you personally and at the corporate level you should be wary of. If you can get out of the company without a dissolution you will come out better in most cases and likely so will your fellow investors.

    You should contact a local contracts and business entity attorney who is also versed in tax law, and a CPA in your state, to make sure you are not on any state filings, contact the local Dept. of Revenue to make sure they know you have resigned, and file proper filings with the Secretary of State where you live as necessary. An attorney should be able to help both dissolve your old business and incorporate a new business.

    This answer is based on general legal principles only and is not intended to provide specific legal advice. This... more

Related Topics

Incorporating a small business

Incorporation is the act of forming a corporation, a separate legal entity whose rights and liabilities are distinct from its shareholders.

Small business partnerships

A business partnership is an arrangement whereby parties enter an agreement to cooperate for their mutual benefit.

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