• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

Help in getting rid of a business partner in an S-Corp

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

mogulbumm

Junior Member
What is the name of your state (only U.S. law)? Massachusetts

I own 50% of the shares of an S-Corporation in MA with a business partner that owns the other 50%. The corporation was started when I was very young and I did not have ANY business experience to check to see if there were any clauses pertaining to buyout (there aren't). Over the past 10 years, I have been running the business pretty much by myself with the partner not contributing much. We each draw the same salary and benefits which has become unfair compared to the number of hours and effort I dedicate to the business growth.

I am now at the crossroads where I want to grow the company through mergers and he is dead against it. We no longer see eye-to-eye on these areas and it is time that I buy him out. We explored the option of a buy-out, but he claims that he is too young (at 51) and wants to work another 8 years or so, however I need to make my growth moves this year as I am 38 and at a different stage in life and business.

If I did buy him out, he is expecting a fairly large lump sum of 1.5 Million, though his share of the business is truthfully worth half that. I would agree to 1 Million if I could finance him over 5-10 years, but that is out of the question (he tells me he can make more than that in salary over the next 8 years and STILL own half the business at that time). While he has also been a friend, it is an ugly feeling now and I simply want him gone.

While I'm sure that he would agree to buy me out over time, I don't have the confidence that he could run the business long enough to pay me even half of what I would expect since he simply is not capable of running this kind of high-technology business. There is also not enough cash flow for him to pay me off and also hire a CEO to replace me.

Hence, I am at a crossroads. I don't have a majority stake, but after speaking to an M&A specialist he told me that there are provisions to allow me to have final say in decisions that affect the business if we do not agree on a direction, especially whereas I am the face of the company and have been driving the growth.

I am seeking legal counsel as well, but looking for any/all advice I can get as to my options. I don't have the equity to get enough money to buy him out up front, and I know he will not take a long-term payout. The M&A specialist recommended that I do the following:

- Proceed with the merger I have been targeting with the partner getting his fair share of the merged company value.
- Use corporate provisions to break the "tie" that would result in our corporate vote to merge
- Write language into the merger paperwork that all owners must materially participate and do so to a documented standard (and be paid a salary in accordance with that position)
- Incorporate buyout language into the merger that would allot a percentage amount to buyout any owner who wanted to leave or was forced out due to not meeting provisions above (that would be a documented accounting multiple of some measure of profits dictated up front)
- Ensure that the language would be concise that the buyout would be over a specified period of time so the business cash flow would not be affected

Does this seem reasonably to you legal folk out there? As a corporation, I cannot, legally, drive business to the other companies then take on a role in their company. I don't want to dissolve the corporation since in our business if our clients leave the chance of them coming back is low. I don't want to accept a buyout offer that I don't feel will be able to be honored over time (unless there is a personal guarantee to cover it). I also cannot drive the business into the ground, legally, then restart it.

Hence my dilemma. I wish I was as business savvy 18 years ago as I am today and had thought all of this out ahead of time, but now I'm stuck with a partner who needs to go, fast, without affecting our total cash flow. How do you force a partner out who doesn't want to sell? In his defense, he want to participate more in the business, but not on a full-time basis and he does NOT have a skill set that warrants the salary he takes.

Sorry for the long post, but I am hoping more detail and background can help with recommendations.
 


tranquility

Senior Member
At the end of the day you are either going to try to trick him procedurally or make a deal with him. Everyone will be happier, the world will spin better and you won't always be looking over your shoulder for a process server or the sheriff if you choose the latter.

Talk with him. Make a deal.
 

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential
data-ad-format="auto">
Top