Legal Question in Business Law in New York

Re: Responsibilty for Corp ''debt''

The corporation has actually established a credit rating by repaying a bank loan, which is different then losing money.

If the other shareholder has made a loan to the corporation for that purpose,she now has more equity in the corporation then you do.

Absent an agreement however, she cannot sue you for half of her investment because the bank made the loan she repaid. She voluntarily paid the whole

amount (unless she was personally liable on the note,) and only the bank can give the corporation a release on the loan.

Unless you are personally liable on the note, you should not have to pay anything to her or the bank.

If you wish her to purchase your shares, her request makes little sense, since depending on your total investment as opposed to hers,

she will have purchased 100% of the shares of a solvent corporation with

decent credit.

You should not have to pay her, it works the other way around. You should think of it in terms of its value to her, and exactly what you have invested to date.

Re: Responsibilty for Corp ''debt''

The first thing to remember is that only the bank can release you from the guarantee. In the absence of an agreement to the contrary, as between your selves, you and your partner each share one half of the bank debt (to the extent it is not paid by the Corporation}. On the other hand, each of you is responsible for payment of the full bank debt.

As far as the sale of your stock to your partner is concerned, you and she are free to negotiate any price that is mutually satisfactory. No one can force you to sell, and no one can force you to buy any of the stock in the Corporation.

In any event, if you sell your stock to your partner be certain that before you surrender your share certificate you receive a general release of your guarantee from

Re: Responsibilty for Corp ''debt''

To add to the previous reply, what the other shareholder essentially did in paying off the corporate loan was probably to make a loan to the corporation herself. This means that upon liquidation, her claim for repayment of debt would be superior to your claim for your 50% of the equity. She does not have a viable claim against you as a shareholder (that is a vital difference between a corporation and a partnership) but economically she is potentially in a better shape than you are as against the corporate assets upon dissolution. Your personal guarantee agreement with the bank needs to be examined to see if your liability to the bank is fully extinguished with the payment she made on behalf of the corporation. Lastly, in the absence of a shareholders' agreement between you and her, you both would have to agree on the terms of a "buy-out."

The above reply is in the nature of general information, is not legal advice and should not be relied on as such.