Legal Question in Business Law in California

Re: adding a partner to a s corp.

There are no 'partners' in corporations. You can add shareholders, officers and directors by taking proper action and documenting the corporate records, and filing the required requests and notices with the state. Feel free to contact me if serious about doing this right, and learning what the rules and procedures are.

Re: adding a partner to a s corp.

Corporations don't have partners; they have shareholders. There are two ways to add someone as a shareholder of the corporation: (1) the corporation can issue some stock to the new holder; or (2) a current shareholder, such as yourself, can sell part of your stock to the new guy.

The secretary of the corporation needs to keep records of who owns stock, and how much. The secretary, president and board of directors also need to make sure that the corporation doesn't issue more shares than are authorized by its articles of incorporation. So, one set of "forms" that need some additional information will be your shareholder list ans stock-issuance register.

Under the Corporations Code, a corporation with only one shareholder needs to have at least one director. Corporations with two shareholders must have two or more directors; and corporations with three or more shareholders need to have at least three directors. So, be sure to elect additional directors, if necessary, to meet these requirements.

Finally, corporations don't normally just hand out shares, nor do shareholders often just give away part of their holdings. Most stock-issuance and stock-sale transactions involve the issuer or the seller getting something in exchange. For instance, if a new shareholder is getting a 50% stake in the corporation, and the corporation has a book value of $100,000, it might be fair and realistic for the corporation to get $100,000 cash from the new part owner, who will then own one-half of a business with a book value that is now $200,000. All of this should be documented.

The corporation should make sure the contracts, corporate records, bill of sale, etc. mentioned or implied above are prepared and maintained.

In addition, the following forms may need to be prepared and filed afterwards to report what has happened: Secretary of State Form SI-200 C, to report new officers and/or directors, and Commissioner of Corporations Form 25102(f) or similar form to report any new issuance of stock.