Legal Question in Business Law in California

The following list of steps includes some important and generally-applicable ones, but is not necessarily complete:

(1) Review your articles of incorporation and bylaws for any applicable restrictions and any provisions that need to be revised, then make the revisions.

(2) Hold a board meeting to formally authorize the stock issuance and any other related corporate changes.

(3) Plan to comply with Corporations Code section 212, requiring a corporation with three shareholders to have at least three directors.

(4) Carefully review Corporations Code section 25102, especially subsection (f), covering exemptions from registration of securities. You will probably qualify for the 25102(f) exemption, but note that it requires filing a notice with the Commissioner of Corporations (a so-called "Limited Offering Exemption Notice"). Additional regulations are published in the California Code of Regulations (CCR) section 260.102.14, and there is a small fee for filing the notice, which must be filed within 15 days of the transaction.

(5) If yours is an "S" corporation, you should verify that the new stockholder is eligible, e.g., not a nonresident alien.

(6) Note that the owners of a corporation are generally referred to as "shareholders", not "members" (or "partners" as we sometimes see).

(7) Be careful to make full and accurate disclosure of important corporate matters to your new shareholder before he or she commits.

(8) You might also take a look at Section 4(2) of the federal Securities Act of 1933, which contains the most likely exemption from federal law for your securities issuance.

(9) If you have issued stock certificates, the existing ones should be returned and cancelled, and new ones issued showing the new ownership quantities.

(10) If you don't already have one, maybe you need a bilateral agreement with your current co-owner, since his percentage decrease is larger (30% to 20% is a 33-1/3% reduction) than yours (70% to 60% is about 14%).

(11) Despite this list, items peculiar to your particular setup or omissions in my listing may arise, so I strongly encourage you to check with the attorney who set you up in the first place, or another local corporations specialist, for help in carrying out the 25012(f) details or anything that I've overlooked.