Legal Question in Business Law in New Jersey

Re: Small Business Partnership

While I generally agree with John, the By-Laws in and of themselves cannot make an agreement, which must be done between the stockholders. Many variations can occur: the stock can pass to family members by Will, by operation of law for intestacy (dying without a Will), which may include spouse and children, depending upon the value of the estate or by agreement between the stockholders (usually allowing the survivor to buy the decdent's interest), which should set the purchase price and terms of sale. In some cases insurance is purchased on the lives of the stockholders to fund the purchase and to assure payment in full. Be cautious, as there are also laws on minority stockholdings (the 25% owner has rights) allowing for appraisal of the shares and might cause a compulsory buy-out if the stockholders do not get along. I strongly suggest that you husband have a Will which specifies what happens to his stock, and some agreement with the other shareholder, in writing. An attorney familiar with these matters should be consulted.

Re: Small Business Partnership

Unless the bylaws of the corporation provide otherwise, if your husband dies, his interest in the corporation passes in the same way that his other property would. It may surprise you to know that, unless he has a will that gives you the interest in the business, his children may get part of the interest in the business as a result.

A corporation should issue share certificates that provide evidence of ownership. Many small businesses neglect this formality and that causes trouble when an owner dies.

So, to provide for both your security and for the security of the business, you should encourage your husband to do three things:

1. Ensure that the corporation has issued stock certificates that evidence the ownership in the business.

2. With the other owner, determine what should happen in the event of the death of an owner and include this in the bylaws of the corporation. Usually, this takes the form of an appraisal of the value of the corporation at the time of death and a buy-out agreement that gives the remaining owner(s) time to purchase the stock of the deceased owner. In the alternative, if you are capable, you may want to retain ownership.

3. Prepare a will.

Business ownership is one of the many good reasons for having a will. Another is if there are children of more than one marriage.