Legal Question in Business Law in California

Re: Implications of leaving an S-Corp as a partner?

Shareholders in corporations aren't partners. Partners can withdraw from a partnership. Shareholders cannot (and need not) dissociate themselves in the same way.

You can indeed just say, "I'm outta here!" and if you put it in writing with a bit more formality and hand it to the president or secretary of the corporation (perhaps with a few more details!) you can effectively resign as a director (if you were one) and/or as an officer (if you were one).

However, you'll remain a shareholder. There is no way I know of to forfeit your shares in a corporation, nor to force the corporation or any other shareholder to buy them back, or accept them back as a gift. They kinda stick to you. This becomes a particular problem when you'd like to be rid of them to establish a tax loss to get the writeoff. Of course, if you paid nothing for them in the first place, you'd have a zero basis and no loss would be possible. I have had the same problem personally, holding small business shares that no one wanted and thus I couldn't establish a loss by dumping them at 1c on the dollar.

Corporations sometimes have buy-sell agreements where a withdrawing owner can oblige the company to but his shares, or vice-versa and company can require the departing holder to sell back the shares, but I'd guess this corporation or its co-promoters have no such arrangement.

There are four other shareholders; my suggestion would be, if nothing compels you to sell them in any particular way or to any particular person, to offer your 15% stake (the shares) to whichever of the other four will give you the highest price - or any price - just to be rid of them.

Since it's an "S" corp. be sure they give you K-1 forms for your tax return, and talk to your tax preparer about your capital gain or loss and any flow-through benefit you get from the corporation's losses.

Re: Implications of leaving an S-Corp as a partner?

talk to your tax man about the consequences. Legally, just ensure proper documentation of the stock transfer back to the company.