We have agreed to an amount on which he will purchase my stock in the company. what kind of paperwork is needed so I will no longer be liable for any debt or equipment leases in the company?
Since an s-corporation has limited liability, simply selling your shares relieves you of any liability for the company's actions.
Besides what your partner is paying you, you are entitled to your share of the 2014 profits. Did you account for this in your agreement?
You may want to discuss your situation with a lawyer in more detail. Most lawyers on Avvo offer a free phone consultation.
This post is provided for general informational purposes only and is not intended to be legal advice specific to you. This general information is not a substitute for the advice of an attorney in your jurisdiction. The attorney client relationship is not established by this post.
Is the company a corporation or an LLC? If a corporation, then you will need a stock purchase agreement for your co-owner to purchase your shares in the company. If it's an LLC, you will need a membership interest purchase agreement. While it is generally true that simply being a shareholder or member of the company doesn't make you liable for the debts of the company, and selling your shares or interest will additionally separate you from the company, I always recommend you get indemnification language in the agreement so that if someone would try to come after you your co-owner would be contractually required to defend you.
Another issue is if there are any debts or contracts that you signed in your own name (as opposed to on behalf of the company) or that you personally guaranteed. Either of these can create personal liability for you regardless of the fact you have the company set up. While an indemnification agreement can help, you ultimately may need to go to each creditor or vendor and try to get your name off the contracts.
As has been suggested, you really should talk to an attorney about this. The cost of getting help is much lower than what you may be facing if you don't properly separate yourself from the company.
Bradley Miller acts as outside general counsel for small business and entrepreneurs. He particularly enjoys setting up new businesses and advising existing ones on contracts and risk management. If you have questions about an answer provided here, you may contact him directly. The answers provided on Avvo are meant as general legal information and are not to be taken as specific legal advice for your situation. No attorney-client relationship is established by the answering of a question on Avvo.
You will need a stock sale agreement and corporate resolutions to formalize the transaction. If you are an officer, you should tender a formal resignation. A lawyer should review your Code of Regulations to determine the specific documentation needed to formalize the stock sale and transfer. Regarding debts and liabilities, you will need to ensure that if you signed any documents for debts and liabilities, that you clearly did so in your capacity as a corporate representative. Banks usually require the owners of small businesses to personally guarantee loans if the small business does not have sufficient assets to secure the loan (which most do not, especially at start-up). If you have bank loans or financing, it is very likely that the bank required you and your partner to personally guarantee any such loan. (Some vendors and leasors also require personal guarantees.) If that is the case, you are personally liable on the loan and if the corporation defaults, the bank or other debt holder will come after you for payment and file a lawsuit against you if you do not pay. Your partner may be able to refinance to get you off the loan (or work out another arrangement) but that is something you need to find out and address now. I highly suggest that you contact an experienced business lawyer in your area to advise you and assist with completing this transaction. If you do not take proper precautions now and instead decide to take a "wait and see" approach, you could face serious debt liability and legal costs in the future.
To add to the other answers: (I) make sure you provide for a tax distribution from the company if you will be allocated net income from the business for 2014 (otherwise, you will have to pay taxes on income you may not have received) - check the numbers with the company accountant, (ii) if you applied for the company credit card (even if it is only in the company name), most CC applications made the applying officer personally liable for payment of the credit card, and getting bought out will not change this - so make sure you and your co-owner cancel any such credit cards, (iii) you can be personally liable for the company's failure to satisfy certain tax obligations, like payroll and state sales taxes, even if you leave the company, and (iv) if you signed a personal guaranty only the bank/landlord/equipment leasing company can release your guaranties, so even if you and your partner agree that he is solely responsible, the creditor can come after you directly and if your partner does not or cannot fully defend and indemnify you, the liability will be yours - so make sure you attempt to get a release directly from the creditor first, before relying on the indemnity.
There are lots of potential landmines to address when exiting a business, so please take the "lawyer up" suggestions.
NOTE: This answer is for general information only, and is not legal advice, a legal opinion or a solicitation for business.
There's some good information in these answers- so I won't repeat it.
But, these transactions can take a couple of forms. The one most frequently mentioned in the comments seems to be some sort of equity (stock, membership interests, or unit) purchase agreement. Those are typically where one owner buys the equity of another.
Another form is when the company "redeems" the equity from the exiting owner. One might do this when the company (rather than the remaining owner) has the cash necessary to consummate the transactions.
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