Q. When my business partner and I formed an “S” Corporation, we had been personal friends for many years. We are now 5 years down the line and recognize – albeit belatedly - that our work styles do not mesh. We argue frequently about everything from marketing to budgeting and are ready to call it quits. I am the President of the Corporation with 50% of the shares; my partner is the Vice-President with the other 50% of the shares. How do we end the Corporation so we may move on separately in business?
A. When business partners decide to separate, it is akin to a marital divorce. Your dreams and hopes for this partnership did not materialize and you are disappointed by the reality of an unsuccessful future together. Moreover, you are quite possibly losing the friendship of a close and familiar comrade. Yet…you understand that you need to sever the relationship so that you may move ahead with your business goals. While it is not easy to take this path, once you have carefully made the decision, it is probably for the best. So, how do you do it?
When you incorporated the business, you or your attorney filed a Certificate of Incorporation and prepared the corporate Bylaws. You or your attorney should consult those Bylaws to determine the means of terminating the corporation, whether by transferring shares from one shareholder to the other, resigning as a corporate officer, passing a Resolution at a “Special Meeting,” or perhaps all of the above. In addition, a Dissolution Agreement signed by both of you should be prepared and executed (signed by both parties to the Agreement before a notary public.) This Agreement will deal with who pays outstanding business debts (if any), use of corporate customer lists and/or business name, sale or distribution of corporate assets, and details concerning the winding down of the business. In addition, New York State’s Department of State, Division of Corporations will also need to be notified of the dissolution. For more information about NYS Department of State, Division of Corporations rules, please see www.dos.ny.gov/corps.
I strongly suggest that you and your partner do not share one attorney in this process. You and your partner have different goals in winding down the business. You may not see it now; you will see it as negotiations begin as to outstanding debts and ownership of customer lists, etc. Each of you needs a separate attorney in this process to protect and represent your disparate needs. While it may look as though you have a similar goal (i.e. terminating the business), in fact this situation is rife with different agendas and conflicts of interest. Each partner wants to end the business with as little debt or encumbrance assigned to him/her and with the most benefit. One attorney cannot represent two people with vastly different interests. Besides being unfair to both parties to the Agreement, it would be an ethical violation of the Attorneys’ Rules of Professional Responsibility for one attorney to represent you and your partner.
I am sorry to hear that your business partner and you are not able to continue your business. However, it is wise that you plan to properly terminate the business and move ahead with your separate business goals. Good luck to both of you.