Legal Question in Business Law in California

Re: Partner Failed to file taxes

My guess is that this business was not very professionally managed. Did you have, maintain and follow a set of bylaws? Did you hold annual shareholder meetings, elect directors, select officers, and keep minutes of all of this?

If the business was run as a corporation, at least to the extent necessary to avoid piercing the corporate veil, and you did not receive distributions in preference to the business creditors, and if you were a director you exercised good business judgment, then your main personal liability risk is from undeposited taxes withheld from employees. Otherwise, you are probably insulated from personal liability.

As a substantial shareholder, the Corporations Code gives you a right to inspect and copy the books. A letter from a lawyer representing you should suffice. If that doesn't work and there is enough money at stake, filing a relatively simple civil lawsuit seeking an accounting and dissolution under a court-appointed referee may be necessary. At some point, your co-owner will probably start to cooperate. If not, perhaps he has something to hide such as embezzlement or maybe just bad management.

In any event, I think your first step is to engage a lawyer to begin applying pressure, which can be turned up, as necessary.

Re: Partner Failed to file taxes

Come on, the first step you should take his get an attorney, one who preferably knows what the hell they are doing. These kind of actions in court handled personally by an individual do not seem to ever go well, that is my experience. Your questions seems to infer that you are pro per. If you have an attorney, then why aren't you relying on your attorney and asking he/she what to do. I just don't understand.i have been practicing law in this speciality for over 30 years in the san francisco bay area and if you wish to consult with me you can contact me at 925-945-6000.

Re: Partner Failed to file taxes

I should add to my previous reply as follows: As you know, an "S" corporation ordinarily doesn't pay taxes itself. Although it is supposed to file a return, it passes its taxable income or loss through to its shareholders, who must then report their allocated income or loss on their personal 1040s.

If your corporation had losses and you haven't used up your at-risk limitation, you are probably missing out on useable deductions. On the other hand, if there was reportable income, even in some special category such as capital gains, you could be liable to the IRS for failure to report. I doubt they would penalize you for failing to report pure losses, however.

The corporation should have provided you with a Schedule K-1 showing your allocation of reportable items.

Re: Partner Failed to file taxes

As a shareholder, you have a right to the records. An action could be brought to dissolve the corproation and have the Court order an accounting and any funds owed you. Please call us at 714 363 0220 if you have any questions or need assistence.

Re: Partner Failed to file taxes

from the facts submitted thus far, it appears on the surface at least that your partner may or may not be keeping accurate legal records. if this is the case, your personal liability could be even more than you might anticipate in a worst case scenario at least. your first step here would be to get a court order to review the books for personal liability concerns if your partner is not forthright in voluntarily allowing you such access to the books. if you would like further legal assistance in this area, email us directly today.