Question: How Do I Get Out of a Corporation?

Written by: Andrew Gale - Orange County - Small Business Attorney

Can I get out of this corporation, what legal concerns may I encounter doing this? What if I quit and take what was mine originally?

I had my own company for 10 years and then got an invitation to start a corporation with a partner 50/50. I am the only one who brought equipment for us to work, but we have been buying some new equipment.

As a company, it is rapidly going downhill.  My partner’s job was to get the work and do all paperwork (invoices as well as managing the checkbook). He has been taking advantage sometimes and we are not getting enough work to survive or at least get a regular paycheck.

I have been doing my part getting the work done as we agreed, but the company is not generating enough money for both of us to keep up with the overhead. I would like to get out and start doing something else. I am about to lose my home and cannot afford to stay any longer the company owes me a lot of money but he still wants to keep trying what should I do?

Answer: Depends, here are the steps

Carefully review the corporate bylaws to locate the corporate dissolution process and schedule a shareholder meeting.

I am so sorry that you run into this problem with your co-shareholder. It is a complicated situation so the first piece of advice that I would give you is for you to call your business attorney and your CPA to bring them up to speed on the current situation.

Tomorrow morning, you want to go through your corporate record book and look for the bylaws of the corporation. You will review the bylaws carefully and look for the section that specifies how you arrange a special meeting with the shareholders and board of directors.

Following the guidance set out in the bylaws, you must schedule a formal meeting to discuss a resolution problem. Ask your CPA to prepare a current financial statement and balance sheet of the corporation. Ask your attorney to review the bylaws of the corporation and any shareholder agreements that you made during the lifetime of the corporation.

Conduct a meeting with your co-shareholder at the first available opportunity.

It would be best if you have your business lawyer and CPA present at the meeting to discuss the accounting and legal aspects of the case. I feel that it is important to make this meeting as formal as possible because the likely result will be that:

1. you buy him out;
2. he buys you out;
3. you both agree to pour more money into the operation of the corporation; or,
4. you start the process of formal corporate dissolution.

Each one of these decisions involves a lot of discussions and it will be best for the two of you shareholders to have objective professionals present while you review the options.