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Ask a Lawyer -- Corporations
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Brought to you by MedLawPlus.com®-- Corporate Bylaws and initial board of directors resolution Price: $14.99 (free trial) |
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Question: I am a 50% shareholder in a California S corporation. I want to retire but my partner does not want to buy me out. We have a buy/sell agreement that is 20 years old and has not been updated. He indicates that he will dissolve the business rather than pay me fair market value for my 50% share of the business. He also will not accept another partner if I try to sell my shares to another party. Who gets what in a dissolution? He doesn't want to have the business appraised, so how do you determine value of intangible assets and intellectual property? Response: Absent a buy-sell that specifically provides for retirement of a shareholder, a shareholder does not generally have a right to force the corporation or other shareholders to purchase the retiring shareholder's shares. The place to start is the buy-sell agreement to see what, if any, option it offers you. Reading between the lines, I take the buy-sell agreement states that the retiring shareholder is to be paid 1/2 of the fair market value of the business upon retirement. The other 50% shareholder isn't happy with the arrangement (agreed to 20 years ago) and is threatening to dissolve the corporation. First question, can one 50% shareholder cause dissolution if the other shareholder does not agree? California Corporate Code Section 1900(a) states: "Any corporation may elect voluntarily to wind up and dissolve by the vote of shareholders holding shares representing 50 percent or more of the voting power." Additional info. Based upon this provisions, it looks to me that the other 50% shareholder could in fact cause a voluntary dissolution of the corporation without your consent. Who gets what in dissolution? If all of the assets are to be sold and converted to cash in arms length sales (i.e., a liquidation), then I don't think an appraisal would be necessary. If, however, the shareholders are to divide up the assets of the company amongst themselves as the final step in dissolution (after first paying all liabilities), then either the shareholders would have to agree upon asset values or an appraisal would be necessary in my opinion. Here is a link to provisions within the California Corporate Code dealing with the mechanics of dissolution. I've never dissolved a corporation where all matters were not agreed upon by all shareholders so there may be an issue I'm missing. I advise taking the matter to California corporate attorney with prior experience dissolving corporations in California. Submitted: 5-30-2006; Len, California Response: 6-2-2006; JJR Add A Comment |
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