Legal Question in Business Law in New York

Re: I want out!

Ouch. This is not a happy situation.

Before we get into your leaving the company, have you (and maybe even your sister) developed any relationship at all with the people from SCORE (Service Corps Of Retired Executives)? These are experienced business people, generally retired now, who volunteer their time to mentor new businesses. It's run through the Small Business Administration, which website I heartily recommend your visiting; this link will pop it up in a new window. Their one-on-one services are free; they charge a nominal fee (about $20 or $25) for their seminars. There's generally a branch reasonably convenient to any business located throughout NY State. ANY new business can gain a LOT by going to them, asking many questions, and following their advice; they have been-there-done-that. Perhaps your sister would listen to the Voice Of Experience, even if she won't listen to her business partner (you)? You can find them here, and this link will pop up in a different window.

Yes, you can sell your shares of the business to your sister for a fair price (I generally tell my clients to sell all their stock for the amount the seller has invested in the business), IF she is willing to buy them from you. However, because your business is closely held, it would be very, very difficult to sell them to anyone else (and that means ANYONE else, including another family member).

Alternatively, you could abandon your shares and return them to the corporation. This would mean that you get nothing for them, but if you're desperate enough to get out, that's an option.

Do you and your sister both sit on the board of directors? If you sit there, you will have to resign formally in writing.

Did you agree AT THE BEGINNING what to do if/when someone wants out? Is it in your shareholder's agreement? If so, follow that procedure to the letter. Check your agreement; this sort of thing happens way too frequently for most lawyers (or even most forms) to leave out some provision for transfer. However, if your sister has no clue how to run a business, the business will almost certainly fail, she may see your pulling out (rather than her own business ineptitude) as the cause of the failure which could forevermore influence your relationship, and you may end up personally stuck for the $4K in debt if you signed the note that secures the debt.

Understand that if you pull out now, you will in no way profit from the "huge potential" of the business, should your sister actually make a go of it. The profits will belong exclusively to her.

Good luck. If I can be of further help, please contact me offline.

THE INFORMATION PRESENTED HERE IS GENERAL IN NATURE AND IS NOT INTENDED, NOR SHOULD IT BE CONSTRUED, AS LEGAL ADVICE. FOR SPECIFIC ADVICE ABOUT YOUR PARTICULAR SITUATION, CONSULT YOUR ATTORNEY.

Re: I want out!

Ms. DeLain's advice is all excellent. I would point out that you have an additional option -- keep your shares and resign from the company's day-to-day operations. If your sister-in-law is able to make a go of it, you'll have the upside; if not, you're out nothing. There are certain obligations you have and cannot escape, and the same goes for risks, that come with share ownership at the level you enjoy. Therefore, no matter what you decide is the best course of action, you should make every effort to secure and consult counsel before doing anything. Good luck.