In a C-Corporation, can a partner stop another partner from selling out of the company if there is no buy sell agreement?

Asked about 1 year ago - Woodmere, NY

I'm in a c-corporation partnership, I own 50% of the company and I am currently selling out to an interested buyer. The other partner says he has right of first refusal like he does in his other partnerships, although we never created a buy sell agreement and is not in out by-laws. His fear is that the business will go into a downward spiral if I leave and so he says I can not sell my portion of the business. Since its a c-corp and these are just shares with no buy-sell agreement, can't I just sell the shares to an interested buyer and the buyer assumes my role in the company?

Attorney answers (3)

  1. Marcin P. Zola

    Contributor Level 7

    3

    Lawyers agree

    Answered . Generally, unless conspicuously noted on the share certificate, restrictions on transfers are not enforceable against a shareholder who has no way of knowing about them. New York considers shares as personal property and forbids unreasonable restrictions on their sale. Additionally, where a selling shareholder is required to obtain consent of other shareholders, New York courts have found such a restriction to be not enforceable. However there are exceptions in tenant-shareholder cooperatives and professional service corporations. So please consult a business attorney. He will be able to take a look at the corporate documents and tell you if you are in fact bound to a "First Option" restriction or a "Consent" restriction. Hope this helps.

    This answer is general information only. No legal advice is given in this answer. No attorney-client relationship... more
  2. Frank Anthony Natoli

    Pro

    Contributor Level 19

    3

    Lawyers agree

    Answered . This is a most unusual scenario.

    I am a NY business lawyer and before I would answer this conclusively, I would want to just double check to ensure that there are no statutes that speak to this situation regards to close corps. I do not believe that to be the case, but an issue like this is not that common. For example in CA, where we have several clients, there is a slightly different regime regards to close corps.

    So unless there is some written provision that states otherwise, you cannot prevent a shareholder from selling their shares. That is their asset and is no different than preventing them from selling their other personal property.

    What makes this so unusual is that in a 50/50 context it is near impossible for one partner to sell their shares to some third party that is a stranger to the business. That is, would you want to buy into a business where 50% is owned by someone who does not want you there? That is quite problematic.

    I suggest you discuss this over in more detail with a lawyer so all the facts and circumstances are understood.

    Most of us here, including myself, offer a free phone consult so you should take advantage of that.

    Best regards,
    Frank
    Natoli-Lapin, LLC
    (see Disclaimer)

    The law firm of Natoli-Lapin, LLC (Home of Lantern Legal Services) offers our flat-rate legal services in the... more
  3. Robert John Murillo

    Contributor Level 20

    4

    Lawyers agree

    Answered . Your facts seem to indicate that a buy-sell agreement must be in writing to be effective. That is incorrect. It appears that the other shareholder will claim that there was an oral agreement on a buy-sell. Now, that will be a very difficult claim if there are no facts to support this, but this could be a claim.

    That said, based on your limited facts, you should be able to sell your shares. Your shares are your property and absent a written or oral agreement that would restrict your right to sell, you are free to do what you want. I strongly recommend that you speak with a NY business attorney to cover all bases.

    This answer is for informational purposes only and is not legal advice regarding your question and does not... more
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