I am a partner in an S corp. There are three partners at 33 1/3%. Because we exhausted our avenues to get funding we agreed to bring in another partner. The money we have used so far came from an equity line one of the partners had. We had a promissory note drawn up saying we all agreed to pay back the money. Myself and the other partner have been operating the business while the third(who gave the equityline money) worked another job. To bring in the new partner, who has the money to finance the business, the equityline partner wants to redo the A.O.I to where she has 50% and the new partner has 50%. That would leave me and the other person off the s corp A.O.I. (we are actually the original owners of the business) is there another way to do this with giving up our company
There are no partners in an S corp -- you're all corporate shareholders. Yes, you can issue stock to another shareholder, and you can reallocate the ownership shares.
I'm guessing you have no corporate Bylaws, no shareholder agreement, and you're not holding director or shareholder meetings and otherwise acting like a corporation.
Yes there are other ways to structure this, involving a combination of debt and equity, and you and the other shareholder shouldn't have to be totally divested of your ownership in the company. You're got to see a business lawyer so you can do this properly and have enforceable paperwork.
Avvo doesn't pay us for these responses, and I'm not your lawyer just because I answer this question or respond to any follow-up comments. If you want to hire me, please contact me. Otherwise, please don't expect a further response. We need an actual written agreement to form an attorney-client relationship. I'm only licensed in CA and you shouldn't rely on this answer, since each state has different laws, each situation is fact specific, and it's impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue.
The equity line shareholder is being outrageous. No restructuring should just freeze out two shareholders completely. I agree with Ms, Koslyn. You and the other person need to hire your own business lawyer to protect your interests. BTW, what is A.O.I.?
DISCLAIMERâ€”This answer is for informational purposes only under the AVVO system, its terms and conditions. It is not intended as specific legal advice regarding your question. The answer could be different if all the facts were known. This answer does not establish an attorney client relationship. I am admitted only in California. (Bryant) Keith Martin sbbizlaw.com
I agree with Ms. Koslyn and Mr. Martin that you will need to hire an attorney. The "equity-line" shareholder appears to be trying to muscle you out. Ms. Koslyn is correct in saying that are several possible ways to resolve your issues in a rational manner.
But you will need an attorney protecting your rights in order to accomplish your goals. You may even need to initiate litigation, if for nothing more than to bring everyone to the table.
Provided you have existing corporate governance documents, they may need to be amended or re-drafted as you mentioned. Once that occurs, the wording will be of the utmost importance.
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