I want to sell but the other shareholder doesn't. Who wins?

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Question:

A friend and I formed a corporation together, and we share ownership equally. The business is in financial trouble now, and I would like to sell it and make at least something out of it before it is too late. My partner says she cannot afford to buy me out and refuses to sell. What should I do?

Answer:

The remedy available to you depends on where you live. In some states, a shareholder that owns at least 50% of a corporation's stock can elect to voluntarily dissolve the corporation. Upon dissolution, the corporation would cease to exist and all its assets would be sold and split among the shareholders according to how much stock they each own.

In other states, a majority of shareholders is required to elect voluntary dissolution. In this case, in a corporation with two equal shareholders, one shareholder alone cannot opt to dissolve it. However, the unhappy shareholder can go to court to petition for an involuntary dissolution. In this situation, if the court agreed that the shareholders were deadlocked, all assets would be sold and split up. This can be a drawn-out hassle, however, and doesn't sound like it's worth it in this case.

Your best bet is probably to use the threat of involuntary dissolution as leverage, forcing the other shareholder to buy you out at a low price -- perhaps compensating you for the value of half the equipment.

If you go into business with another person again, consider the ounce of prevention that a buy-sell, or buyout, agreement would provide. Such a document would spell out the Ps and Qs of what would happen if your business takes an unexpected turn.

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