Legal Question in Business Law in Virginia

Re: Breaking up a S-corporation

You end a corporation by "winding up" the corporation. This basically involves selling all the corporation assets, paying all the liabilities, and distributing any excess to the shareholders.

Then you file the proper form with your state corporation office, file that year's tax return, and you are done.

Re: Breaking up a S-corporation

First, an "S corporation partnership" is a contradiction in terms. Neverthless, I know what you mean and how an S-corp works in a situation like yours. But when we get into the precise details, it matters exactly waht your paperwork says, and what you say now in any paperwork to cancel it. In order to cancel it, you need to be very clear about what "IT" is you are canceling.

Second, you or an attorney for you would need to check very carefully how far did things progress in formalizing the S-corp? At what point did your partner drop out? Was the paperwork complete or incomplete? In other words, was the attempt to create the S-corp effective or not yet done?

Third, I would want to know exactly how the land was bought. Was it bought in the name of the S-corp., or in the name of an individual? Are you absolutely SURE? I would check the deed and the purchase contract, even if you think you remember.

Fourth, then the question is what do you mean he wants to drop out? Several aspects of this occur to me, but I won't list them all here. The point is just what does he want or not want at this point?

Is he intending to give you the entire business? We need to know what your goal is and what his intention is more precisely.

Fifth, as a result, if he is willing to agree, then you can do almost anything you want. As long as he is willing to sign an agreement, there is no difficulty at all. The concern I have is either (a) if "drop out" means he is either AWOL and unreachable or mentally "checked out" (doesn't want to deal with it any more) and won't cooperate or (b) he gets cold feet and starts making demands when you start getting serious about unraveling the deal.

NOTE, however, that a business opportunity is an asset of the corporation. Without working things out with him, you cannot simply take the opportunity and run with it on your own. You may need to account to him for the profits later. So you do want to get it cleared up, if he is bowing out.

If you just terminate the S-corp, then all of the assets will be distributed to the owners. That means that your partner would personally receive 1/2 (or whatever the distribution was originally) of the land and any other assets.

Once you work out whatever issues you have with him, to actually terminate the S-corp, you simply need to file a form with the State Corporation Commission notifying them that the corporation is terminated.

However, you must "wind up" the affairs of the corporation, selling off any assets, and distribute to your partner the proceeds in equal measure with yourself.

But after you "wind up" the business issues of the S-corp, formally ending it is easy. You just file a form with the State Corporation Commmission telling them it is terminated. Would you be surprised to learn that there will be a slight FEE to the SCC for terminating the corporation? Sorry, but there is.