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S corp with no partnership agreement in place. We own equal shares. I put all the capital in. The other partner brought some: accounts in. We have negative equity and debt. Can we allocate profits/losses based on % of capital contributions? What are my rights is she is not performing? She is supposed to go out and get new accounts and does nothing. I do all the accounting and finances. Thanks

Asked over 6 years ago in Corporate

Arieh’s answer: Unfortunately, with an S Corp, the allocation of profits/losses, distributions and all other ownership rights are directly tied to your stock ownership. So, in your case, each of you own 50% of the stock, you each must be allocated 50% of the profits/losses, receive 50% of the distributions etc. This is true whether or not you have a shareholder agreement (or what you referred to as a "partnership agreement"). This is one of the main reasons why many of my clients choose to use an LLC rather than an S Corp - since you have the flexibility to use different percentages with respect to allocations of ownership, management, profits/losses, distributions, etc., and you still have the ability to obtain the same pass-through tax treatment as an S Corp.

Nonetheless, there are other ways to address the disparity in your contributions (i.e., both capital and workload) that are not related to "ownership" rights or distributions. For example, you can pay yourself a salary, or if both of you already receive a salary, you can increase yours to reflect a fairer and more equal "distribution". However, you have to be careful not to violate the rules of your S Corp election. Also, most of your options will carry some tax consequences as well. So, you need to carefully review your options before you take action.

Additionally, since each of you own 50% of the outstanding stock, there are some actions that you may not be able to take without your business partner's consent. If you cannot resolve the issue amicably, you should consult a local business attorney to discuss your options.

I would be happy to discuss this matter with you. Please email me or call me at 312-236-8110.

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

Answered over 6 years ago.


Regarding my previous question.: I posted if the general contractor has a contract with sub contractor and fails to pay. The General contractor has filed Chapter 7 bankruptcy. He listed myself as a creditor and the sub contractor.The sub contractor filed the lien against me 100 days after, I thought they had 90 days after completion.

Asked almost 7 years ago in Contracts

Arieh’s answer: Lien rights are generally governed by the Illinois Mechanics Lien Act - which provides certain protections to you as the owner. This is particularly true when you have paid the contractor for the work, but the contractor has neglected to pay his sub-contractors. So you may have a defense against the lien claim. Lien claims are often improperly filed by sub-contractors. So, I suggest that you consult with a real estate/construction attorney ASAP.

You will also need to consult a bankruptcy attorney to file a claim against the contractor in its Chapter 7 bankruptcy.


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

Answered over 6 years ago.


Can LLC operate while one equal right memeber does not agree?: In the process of whether to close LLC or transfer interest of memeber. There are some disagreement on interest transfer. Is it legal to start run LLC when one member disagree?

Asked almost 7 years ago in LLC

Arieh’s answer: While I am not licensed in California, your issue is one that deals with general legal principles that are similar to my state. I agree with my colleague, your operating agreement and/or other membership agreement should have some guidance on what to do. If you do not have an agreement or it does not provide much guidance, then you can look to California's statute for limited liability companies.

As for whether it is legal to run the LLC when a member disagrees, the short answer is yes. The LLC can (and must) continue to operate even if there is disagreement among the members. You do not indicate how much of an interest the member who disagrees has, but assuming the member has less than a majority (50% or less), that member cannot hold the LLC "hostage", you (and the other members) can outvote the disagreeable member and continue to operate. You can choose to "fire" the member as a manager/officer and remove them for the operations, bank account etc. However, this does not necessarily mean you can "fire" them a member. They would continue to have rights to distributions, rights to vote as a member (on policy-making decisions) and access to the LLC's records- at least until you are able to buy them out or they transfer their interest.

Also, you may not have the right to force them to transfer or sell their interest or determine a price for them - again you need to look to your operating/membership agreement. If you and the other members have the power to force a "redemption" of the member, then you need to pay fair value for the interest.

If you cannot resolve the issue amicably, you should consult a local business/intellectual property attorney to discuss your options.

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

Answered almost 7 years ago.