I bought out a parnter of an S Corp getting 50% of the 1000 shares. The partner staying on put NO capital into the business but

Asked over 3 years ago - Chicago, IL

did bring in clients. I have ALL the capital invested. We now need to part ways and we have negative net worth.
How can I get her out? Does the fact that the capital accounts are like 80%/20% how can I proceed?

Attorney answers (2)

  1. Arieh Mordechai Flemenbaum

    Contributor Level 12

    Answered . You do not indicate whether you wish to buy out the other partner, continue with the business or simply liquidate and dissolve your business. Nonetheless, assuming you do not have a shareholder's agreement (or buy-sell or other form of agreement between you and the other shareholder), ultimately, your exit strategy comes down to negotiations between you and the remaining shareholder. However, there are some constraints (or obstacles) you will have to deal with. For instance, your company is an S Corp and there are very rigid rules and predetermined tax consequences to what happens upon liquidation or dissolution of your corporation.

    I suggest you speak with a business attorney and discuss your options. My firm and I handle clients with your situation often, and we would be happy to talk with you.

    This answer is for informational purposes only and is not intended to be legal advice nor does it establish an attorney-client relationship. You should consult a local business lawyer to obtain legal advice that is tailored to your circumstances and facts. Good luck to you.

  2. Steven J. Fromm

    Contributor Level 20

    Answered . This is strictly a matter of negotiation and your sense of what her interest is truly worth. Throw all the other stuff out for the moment and ask yourself what would someone pay for her interest. Then you need to determine how bad you want to get rid of her and for this you may have to pay a premium above what you think her interest is truly worth. After that you then need to determine the best way to do this tax-wise. Take the prior attorney's advice and get with an experienced business/tax attorney to advise and assist you in this matter.

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