Legal Question in Business Law in California

First, I'd caution you not to refer to the co-shareholders of a corporation as "partners." The term "partner" has definite and particular legal meanings that differ from those attached to corporate co-owners, although I agree that a two-shareholder S-corp may seem like a business partnership to those owning it.

Next, I'd say look in the articles of incorporation and bylaws or any written agreements between the owners, such as an operating agreement or shareholder agreement. Often, lawyers setting up 50-50 small businesses will include some kind to deadlock-prevention language to handle situations like this.

Finally, Corporations Code section 308 covers what happens when a corporation has an even number of directors and they deadlock on some major issue -- such as going out of business vs. continuing in business. Look at the Code...... if necessary, get a lawyer, go to court, and ask the judge for relief under the provisions of this section. Also, retaining a business lawyer may allow the two owners to get some independent counseling whereby a trip to court could be avoided.

I agree with Mr Whipple. You are dealing with Shareholders in a Corporation, which is quite different from "partners". His references are correct. You should determine, however, whether there is a buy-sell agreement between the shareholders. When we form such an entitiy we often will strongly reccomend such an agreement to determine what occurs in just such a circumstance. If this was done through legal zoom, it is unlikely your have such a document. If good corporate counsel helped set up the business, you may have such an agreement.

If there is no buy/sell agreement, this sends you back to the corproate Articles or Bylaws. If no provisions are relevant there, you refer to the underlying corporate law under the corporations code.

The legal issues can be avoided ( usually to the mutual benefit of the shareholders), if an agreement of some type can be reached by the two parties. Counsel may be able to help in suggesting and structuring such an agreement. Presumably there is some price at which the retiring shareholder woul b be willing to transfer his or her interest. Loan guarantees or other issues may complicate the resolution of the problem, but there are many creative solutions which may be available.