How do we voluntarily remove a 49% shareholder of a 2 shareholder California S-Corp? What documents are required?

Asked over 2 years ago - San Diego, CA

A friend and I started a business several years ago. I own 51%. We have decided amicably to terminate his ownership. He will sell all of his shares to me, and has already been voted off all positions within the corporation. I just want to ensure that we have the proper paperwork in place for legal and tax purposes. Can we simply sign a Stock Purchase Agreement, delineating our brief terms of payment? I also would like to work in a quasi-noncompete so that my ex-partner, who has already started the very same type of business, doesn't simply steal all of my customer lists, so that I am able to pay him the agreed upon amount over the next two years.

Attorney answers (3)

  1. Inna J Efimchik

    Contributor Level 8

    4

    Lawyers agree

    Answered . In addition to what has already been said, I would like to add that customer lists, if properly protected, are considered trade secrets of the business. Therefore, by law at least, your ex-partner will not be able to use them in his new business.

    Of course, law and practice often aren't one and the same, and you may not have the resources or the desire to pursue him in court if he does improperly use trade secrets. For this reason, it is very important for you to go through (preferably with an attorney) the types of information that your ex-partner had access to in the business, list out the information that you (and your attorney) think is a trade secret, and make sure you convey this to your ex-partner. If you can have him sign an acknowledgement that he understands that the information you have listed constitutes a trade secret and that he agrees not to use it, even better!

    Best of luck!

    No Attorney-Client Relationship. This post has been prepared by Inna Efimchik of White Summers for general... more
  2. Michael Charles Doland

    Contributor Level 20

    3

    Lawyers agree

    Answered . It is what goes into the Stock Purchase agreement, like indemnifications, non-competes and non-solicitation with reasonable limits so they will be enforced, consideration whether a corporate redemption instead of a sale between partners may result in different tax treatment, security for the payment of the loan over time and other matters which make an attorney's intervention, tailored to the facts of your transaction, advisable. I am sure Avvo has good business counsel for you to consult locally in san Diego. Respectfully,

    The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may... more
  3. Amir Hossein Afsar

    Pro

    Contributor Level 8

    1

    Lawyer agrees

    Answered . A stock purchase agreement is the right document to effectuate the transfer of the shares from one party to another. The stock purchase agreement would allow you to purchase your partner's 49% interest leaving you the 100% owner of the corporation. That said, it is the details of the stock purchase agreement which will include the specific additional terms you are concerned about. In addition, if you are making payments for the stock purchased over two years, the terms of your payment plan should also be in writing and, potentially, part of the stock prchase agreement.

    This response does not constitute legal advice and is based upon general legal theories. Since each state has... more

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