Removing 50% owner of our corporation if both parties agree.

First you refer to your corp's Bylaws and Shareholder's Agreement for terms about valuing . stock and buyouts of stockholders. The remaining 50% owner can buy out the other, or the corp. buys the stock back. The stock certificate of the bought out stockholder needs to be cancelled and either reissued to the other stockholder or kept in the corp. The corp. and the remaining stockholder will want releases and indemnity from the bought out stockholder. There may be other provisions you need in a buy-sell agreement, and other assignments of other assets and/or liabilities, depending on the kind of work the corp. has been engaged in and the assets and liabilities that the corp. or its stockholders have. Hire a business lawyer - this is a fairly complicated transaction (or series of transactions). Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

You also need to retain experienced corporate or tax counsel to explore the best way to structure this deal from a tax perspective that favors the remaining shareholders while at the same time looking at any basis implications. Hope this helps. If you think this post was helpful, please check the thumbs up (helpful) tab below. Thanks. LEGAL DISCLAIMER Mr. Fromm is licensed to practice law in PA with offices in Philadelphia and Montgomery Counties in the state of Pennsylvania. He can be reached at 215-735-2336 or at the email address listed below. Mr. Fromm is ethically required to state that the response herein is not legal advice and does not create an attorney/ client relationship. Also, there are no recognized legal specialties under Pennsylvania law. Any references to a trust, estate or tax lawyer refer only to the fact that Mr. Fromm limits his practice to these areas of the law. These responses are only in the form of legal education and are intended to only provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received. By using this site you understand and agree that there is no attorney client relationship or confidentiality between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your jurisdiction, who is familiar with your specific facts and all of the circumstances and with whom you have an attorney client relationship. The law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question or omitted from the question. Circular 230 Disclaimer - Any information in this comment may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

As the two attorneys above correctly state: 1) You'll need to buy back the 50% shareholder's shares, and 2) Evaluate any taxes involved Buying back the shares Look at the Bylaws to see how share buybacks work in your company. Most often it requires 75% of the non-buying back shareholders to approve the transaction in a shareholder's resolution Valuation You must set a price on the shares to be bought back -- this takes into consideration the value of all of the assets of the corporation, including intangible assets and goodwill. Agreements Depending on the formality of agreements you want and the degree to which you trust the shareholder, you may need a share buyback agreement, resignation letter (if the person is also an officer), and other agreements and file a Statement of Information with California removing them as an officer as well. Taxes The bought out shareholder will need to pay taxes on the share repurchase for the difference between what he or she paid for the stock (probably very little) and what you pay for the shares -- therefore, the sale price is very important because it will determine how much the shareholder will have to pay on their 2010 personal income tax return. Finally, if you are the only shareholder left (second remaining shareholder), then you are a 1 person S Corporation which is by default a "Disregarded Entity" and you no longer need to file an 1120S with the IRS -- instead just file taxes on Schedule C of your form 1040. Legal disclaimer: The above information is not legal advice and should not be relied upon as legal advice. No representations are made in the above communication nor may any information contained herein be used in a court of law as a representation upon which you may rely.