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  #1  
Old 02-27-2004, 05:22 AM
saporta saporta is offline
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Join Date: Feb 2004
Location: CA
Posts: 3
Question What legal documents to add shareholder in an S Corp.

I have an S Corp. I am the only shareholder, President and CEO of this S Corp. I have 1000 shares.

I need to either sell some more shares to another individual or sell part of these 1000 shares. I wish that the other individual has 51% ownership of the S Corp.

THE QUESTIONS:
- What legal documents do I need to draw in order to accomplish the above.
- Where do I get a Shares Book? Is it something I can buy at Office Max?
- Are there any Government form either Federal or State (in California) that need to be filled and mailed.
- Is there anywhere a standard document or software that helps me to simply fill the gaps to create the document in the correct way?
- The party that owns 51% of the S Corp, should she/he have a specific position? - President or CEO? or is it discretionary?
- Where can I find more information?

Thank you for your help.
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  #2  
Old 02-27-2004, 10:01 AM
OhioDave OhioDave is offline
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Location: Dayton OH
Posts: 200
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Saporta,
Did you loose a bet that you have to sell 51%??? I'm guessing you are selling off the majority to give your business special status (women owned business or minority owned business). I hope you trust your investor. Regardless, I can try to answer some of your questions with the information I know.

- What legal documents do I need to draw in order to accomplish the above.
You shouldn't need a lawyer to just sell shares to another investor. The only legal paper work is probably the sell record in the company's official share holder roster (not sure of the exact term). Since you are an S-Corp, there are special rules that you have to follow, such as foriegn ownership and the number of investors. You can look up the details of that. I don't know how tax implications work in this scenario. Maybe someone else can throw their $0.02 in?

- Where do I get a Shares Book? Is it something I can buy at Office Max?
Just a regular old accountant's book should do. It's probably not sufficient, but all I use is a spreadsheet on my computer, no paper docs.

- Are there any Government form either Federal or State (in California) that need to be filled and mailed?
The only form I know of is the original IRS 2553 form to establish the S-Corp. I don't think there are any other forms, but I could be wrong. Does anyone else know?

- Is there anywhere a standard document or software that helps me to simply fill the gaps to create the document in the correct way?
I don't think you need any special documents.

- The party that owns 51% of the S Corp, should she/he have a specific position? President or CEO? or is it discretionary?
Shareholders don't have to hold officer positions, not a requirement. Shareholder's annually vote on who makes up the board of directors. The board of directors then appoint / vote in the officers (this could differ depending on your company by-laws). OF COURSE you know, now that you no longer control a majority of the shares, you can be fired at pretty much anytime. Hopefully you trust your new investor.

- Where can I find more information?
The internet is a wonderful location for information. I've really enjoyed nolo.com for free legal advice. There are tons of sites that can help with business issues (too many to list).

I hope this helps. Best of Luck!
OhioDave
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  #3  
Old 02-27-2004, 08:46 PM
saporta saporta is offline
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Join Date: Feb 2004
Location: CA
Posts: 3
Arrow Thanks

You are right on the money Dave. I need to pass 51% ownership to my wife so that we can qualify for MWBE certification. Hell, if I cannot trust my wife, who can I trust

Thank you for your input. Nolo.com was helpful site as well.
Thanks.

Quote:
Originally Posted by OhioDave
Saporta,
Did you loose a bet that you have to sell 51%??? I'm guessing you are selling off the majority to give your business special status (women owned business or minority owned business). I hope you trust your investor. Regardless, I can try to answer some of your questions with the information I know.

- What legal documents do I need to draw in order to accomplish the above.
You shouldn't need a lawyer to just sell shares to another investor. The only legal paper work is probably the sell record in the company's official share holder roster (not sure of the exact term). Since you are an S-Corp, there are special rules that you have to follow, such as foriegn ownership and the number of investors. You can look up the details of that. I don't know how tax implications work in this scenario. Maybe someone else can throw their $0.02 in?

- Where do I get a Shares Book? Is it something I can buy at Office Max?
Just a regular old accountant's book should do. It's probably not sufficient, but all I use is a spreadsheet on my computer, no paper docs.

- Are there any Government form either Federal or State (in California) that need to be filled and mailed?
The only form I know of is the original IRS 2553 form to establish the S-Corp. I don't think there are any other forms, but I could be wrong. Does anyone else know?

- Is there anywhere a standard document or software that helps me to simply fill the gaps to create the document in the correct way?
I don't think you need any special documents.

- The party that owns 51% of the S Corp, should she/he have a specific position? President or CEO? or is it discretionary?
Shareholders don't have to hold officer positions, not a requirement. Shareholder's annually vote on who makes up the board of directors. The board of directors then appoint / vote in the officers (this could differ depending on your company by-laws). OF COURSE you know, now that you no longer control a majority of the shares, you can be fired at pretty much anytime. Hopefully you trust your new investor.

- Where can I find more information?
The internet is a wonderful location for information. I've really enjoyed nolo.com for free legal advice. There are tons of sites that can help with business issues (too many to list).

I hope this helps. Best of Luck!
OhioDave
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  #4  
Old 02-28-2004, 01:17 AM
OhioDave OhioDave is offline
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Join Date: Sep 2003
Location: Dayton OH
Posts: 200
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Quote:
Originally Posted by saporta
You are right on the money Dave. I need to pass 51% ownership to my wife so that we can qualify for MWBE certification. Hell, if I cannot trust my wife, who can I trust
Funny story about women owned business. My father in-law just started his own Engineering Consulting company this month. Most of his business is with the government. To get the Women-Owned status, my mother in-law owns 51% and she is the president of the company. As her first duties as president... she drove him to the airport! That's why they pay her the big bucks....

Work the system; Don't let the system work you!!! Best of Luck,
OhioDave
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  #5  
Old 02-28-2004, 06:04 PM
saporta saporta is offline
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Join Date: Feb 2004
Location: CA
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This is funny. By the way, I've heard that the Certification procedure for Women Owned Businesses is lengthy and beaurocratic. Is this true? Would you recommend going through a lawyer or simply following the paperwork application on our own would be enough?

Thanks
Asriel

Quote:
Originally Posted by OhioDave
Funny story about women owned business. My father in-law just started his own Engineering Consulting company this month. Most of his business is with the government. To get the Women-Owned status, my mother in-law owns 51% and she is the president of the company. As her first duties as president... she drove him to the airport! That's why they pay her the big bucks....

Work the system; Don't let the system work you!!! Best of Luck,
OhioDave
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  #6  
Old 06-04-2004, 04:13 AM
aangelica aangelica is offline
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Join Date: Jun 2004
Posts: 308
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Hi Saporta,

This is really quite easy. Your last actions as sole director of the company should be to:

1) Sign a board resolution authorizing shares to issued to your wife, enough to give her the voting control of course

2) Issue the shares--yes, you can buy stock certificates from the office supply store

3) You don't have to make her an officer, but you can make her a board member if you want. Just sign another resolution increasing the size of the Board appointing her to the Board of Directors as a director. That way, you can do #4....

4) File an Amended or Restated Articles of Incorporation with your state of incorporation increasing the size of the Board and naming her as a director. That way, anybody who wants to know can see her name on the important paperwork on file with the state. Ultimately, though, the stock certificate and first resolution will serve as proof of her majority ownership.
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