squeezed out

[lionelusa]

What is the name of your state? GA

Two friends and I opened a wine store a few month ago. We formed an S corporation. We agreed to put $70,000 each in it to be equal partners. That was not enough and I loaned an extra $60,000 to the company by charging equipment on my credit card. One of my partners wanted out because of disagreement on management methods and the other one did not want to stay because they have another business together. We reached an oral agreement but they realized that they had a majority of the shares (2/3 to 1/3) and they voted me of the board of directors reducing me to a silent partner. During a meeting with their lawyer I was kindly informed that now they wanted to buy me out and if I refused their terms they would find a legal way to not show any profits or very little and that I would not get any money back.

If I stay they would have to be paid salaries, probably eventually $80,000 each on which they would have to pay taxes and others as the employer and taxes as the emloyee in order not to show profit.
If I go they can share the profits in two and have a minimum salary.

What should I do. Can I tell them and their lawyers that If I stay they will end up paying more taxes than my share of the profit would be worth. If they try to hide profit, can I threaten them by telling them that the IRS could take a close look at their finances (and the finances of the other business)
What are my rights (if any) beside checking the books once a year.

Thanks for any help

LionelWhat is the name of your state?

[LdiJ]

They can actually do something much worse to you than you are suggesting will happen to them.

An S-corp is not required to distribute any of its profits. Therefore they could pay themselves minimal salaries, NOT distribute any profit, yet you would still be required to pay taxes on your pro-rated share of the profits, even if you never receive a penny. S corp taxes are paid by the shareholders.

Of course that means that they wouldn't get much in the way of cash, and would also have to pay taxes on profit they didn't actually receive, but if they have other sources of income, they could at least pay themselves enough salary to cover their share of the taxes.

I suggest that you hire yourself an attorney if you haven't already done so.