Legal Question in Business Law in California

Re: Dissolution of an S-corp

Short-form dissolution only applies where no business has been conducted ("running" seems to indicate business has been conducted), where there are no debts or liabilities, and where the majority of directors authorize the dissolution. I cannot tell from your question if the 51% shareholder(s) (corporations have no partners) wants to dissolve or not. Either way, you should contact a business attorney for assistance.

Re: Dissolution of an S-corp

Start by re-reading your Articles of Incorporation and bylaws. The Articles probably contain nothing relevant, but the bylaws should.

More likely than not, there is nothing in the bylaws that will be directly relevant and helpful; the power to dissolve the corporation is probably given to the shareholders, and you know who wins that one. It may be possible for the directors to vote to dissolve, but even if you have cumulative voting for directors (assuring that you are both directors), that results in deadlock.

Note that a corporation must have at least as many directors, up to three, as it has shareholders. I assume there are two shareholders and hence two directors, you and the "partner."

Since you probably don't have the power to bring about a voluntary dissolution process, you'll need to look at the grounds for involuntary dissolution set forth in the Corporations Code, sections 1800 to 1809. Look in particular at 1800(b)(2).

Another possibility is for you simply to resign your positions as secretary, CFO and director, in writing, given to the co-owner. Then stop participating. Your risk is quiute low, probably low enough to take in order to avoid the hassle of forcing a dissolution. You'd continue to be a stockholder and as long as you didn't revoke your "S" election, you'd get a K-1 and probably some losses you could write off.

Getting bought out might be a better alternative, but the 51% holder has little incentive to pay you anything. On the other hand, if the comapny is moribund, maybe $1 would be a generous buyout.

Other inducements you can offer the other guy to buy you out include a threat to revoke the "S" election with the IRS - which depends upon your continued acquiescence - or to sell some or all of your stock to a third party, thus maybe forcing the company to have a third director or for him to have to deal with a stranger. (Your bylaws may prevent this).

Re: Dissolution of an S-corp

You have not supplied sufficient information to give a definitive answer. Has the company operated? Is there just one other shareholder, who owns 51%, or are there two other shareholders? How many directors of the company are there? What do the company's by-laws say about dissolving the company? Is there any shareholder agreement that sheds any light on this subject?

You should contact an attorney and disclose all pertinent information to get an informed opinion and develop a course of action.