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Purchasing 50% S-Corporation

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orange12

Junior Member
What is the name of your state? IL

I am considering buying 50% of the shares in an S-Corporation from one of two partners. Legally, can the remaining partner (owning the remaining 50%) make it difficult for me, can he reject me as a partner/shareholder? I do not plan to hold any executive position in the company, I plan to only be a shareholder.
 


tranquility

Senior Member
It depends on the corporations organizing documents and by-laws. Most small businesses have some alienation of transfer provisions. Even if they did not, if you don't get partner's full agreement you will have a fiasco on your hands if you ever want to get anything done.

Your question disturbs me in that I think of so many problems that you need to see a professional to advise you before you sink any significant amont of funds in something like this.
 

orange12

Junior Member
Thank you, I appreciate the help-- can the partner stop me from legally sharing in the profits? Let's say, for example, I want to be a shareholder and nothing else, just like in a public corporation-- sharing in the profits and not working, only being an investor.
 

Some Random Guy

Senior Member
You definitely do not want to be in a hostile partnership. If the other partner runs the business, what CAN you do when he
a) raises his salary to $150,000?
b) adds his wife as bookkeeper at $90,000 per year?
c) leases a vehicle through the business that only he will be driving?
d) writes a check to himself for $5,000?

Unless you know exactly how to prevent these abuses, then run away from this deal.
 

tranquility

Senior Member
I agree with Some Random Guy. What is a "profit"? Especially in a 50/50 relationship, there will need to be a tie breaker. I bet that tie breaker will be what the Executive determines. In other words, the executive puts in a policy and the board can't come up with a majority to overrule. With the fears you're having, walk away. You are not going to make a difficult relationship profitable.
 

orange12

Junior Member
I'm not worried about the other 50% partner exploiting the business financially. If it's 50/50 he won't be able to do that on his own. You are saying it's possible that in the specific contracts, though, that an Executive position may hold a tie breaking vote?
 

tranquility

Senior Member
What I'm saying is say the executive makes a decision. To pay his wife, to pay for his cell phone, or vehicle or whatever. You don't like the decision. How to change it? The board of directors can overrule the decision. There is a vote under the rules requiring a majority to pass a motion. OK, let's see um....50% for the motion and 50% against. The motion to overrule the executive fails for not getting a majority. Any other business? No? Meeting adjorned.
 

tranquility

Senior Member
By executive, I meant the person running the business. President, manager, whatever. From the way you've posted, I assume that is the partner or someone friendly to him.
 

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