How to close my store-dissolve my s-corp. 50/50 owner with a friend.

Discussion in 'Growing and Managing a Business' started by Furbed, Mar 13, 2011.

  1. Furbed

    Furbed
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    For various reasons I would like to close my retail store. I am a 50/50 owner with a friend. We are an S-corp. I would like to close this store and re-open with out my current partner.

    Can I do this? Can I re-open in the same location?

    Thanks in advance for your input!
     
  2. Fergal

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    Welcome to our Business Forum Furbed. Is your partner willing to cooperate with what you are doing or are you doing it without his / her consent?
     
  3. ArcSine

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    It sounds like you want everything to continue as-is....same business operation, same location....except with you as the sole owner.

    If so, can you explore the option of simply buying out your partner's 50% share of the corp? The ownership transition takes place behind the scenes, and the store itself continues without missing a beat.
     
  4. Furbed

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    We are at odds on the direction of the company-at this point I have not toold him what my plans are.

    We have been in a similar situation a few years back and he thinks his share is worth way more than it is. I would buy him out if the price was fair, but I know it will be too much. If the price is too high I can start over under a new name for much less money. The question is can I start a new company-new name similar operation? And if the timing were right could I lease the same store front we are currently in?
     
  5. ArcSine

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    In the majority of cases when a multi-owner corporation is formed, there is simultaneously a document drafted called a Shareholders' Agreement, or something similarly titled. This will most commonly be the case when an attorney handles the set-up.

    In any attorney-drafted SA you'll find the usual boilerplate provisions, which will include some "divorce" provisions. Therein are detailed the agreed-upon procedures the shareholders will follow in the event they want to bid each other adieu. This includes an agreement as to how the corp will be valued, the manner by which the acquiring shareholder will purchase the departing shareholder's stock, how the payments are to be handled, etc.

    So first...do you have an SA, and if so, what does it prescribe for a "divorce"? If so, then you must both follow its dictates, unless you mutually agree to amend the SA. If a SA was prepared, it will answer your questions....To what is Other Shareholder entitled if you simply stop operating the existing business?....Is there a noncompete provision that would restrict you in some way from carrying on the business solo?....etc.

    In the absence of an SA, you'd probably default to state law. Every state has a set of corporate statutes that govern corporate activity---including dissolutions and breakups---in the absence of a written agreement between the shareholders.

    In general, the amount you'll have to pay to take over the whole show will probably be the same whether you buyout his half of OldCorp, or simply shut down OldCorp and start up NewCorp. The actual amount (i.e., the determination of the value of a one-half interest in OldCorp) will be determined by--in order--[1] any Shareholders' Agreement; [2] absent [1], whatever the two of you mutually agree to; or [3] lacking [1] and [2], state law.

    The advantage of your buying his half of OldCorp is that there are likely a number of existing accounts, DBAs, agreements, etc., to which OldCorp is a party. You probably have a checking account or two in OldCorp's name. The lease for your premises has OldCorp as the lessee. Maybe even the name of your business is property of OldCorp.

    If you pull the plug on OldCorp and start fresh with NewCorp, all these things have to be transferred. You'll need the landlord to agree to terminate the original lease and re-write a new one for NewCorp, or at least agree to let NewCorp step into OldCorp's shoes for the duration of the existing lease. You'll need to get new tax ID numbers; vendor agreements may need to be revised; creditors of OldCorp may need to be paid off before assets could be xferred to NewCorp;....

    How difficult or easy (or even possible) these transfers would be is very much case-specific.

    Whenever a business partnership is headed for dissolution, AND the partners don't completely agree on every detail of the divorce, it's a great idea to enlist an attorney's expertise. The value of doing so is directly proportional to the amount of assets (and liabilities) involved.

    Best of luck with it!
     

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