Legal Question in Business Law in California

Re: Corporation's Shareholders

You need to learn the basics about how corporations are administered, including how to issue stock and keep records of share certificates and shareholder information. Do you have bylaws, hold annual meetings, keep minutes?

Proper corporate administration is important (to maintain the shield from personal liability, for example) when there is only one shareholder, but it becomes absolutely critical when there are two or more.

The principal "documents" you would use to accomplish installing someone as a 51% holder where you are now the 100% holder are a blank stock certificate and the corporate shareholder register. Fill in the stock certificate and issue it to the new shareholder. Then make a permanent record in the corporation's register of shareholders (this role is normally allocated by the bylaws to the corporate secretary, and I am assuming that you are the secretary since you are the sole shareholder).

The number of shares to be issued would depends upon how many you now hold. For example, if you hold 1,000 shares, in order to dilute you down to 49% you do the algebra and come up with 1,041 shares (approximately) to be issued to the new guy. After that new stock is issued, he'll have 1,041 shares or 51%, and you'll have 1,000 shares, or 49%.

Another caution here is that you need to be careful not to exceed the maximum authorized shares set forth in your Articles of Incorporation. If this would occur, I suggest surrendering your shares back to the corporation and starting with a clean slate, issuing yourself 49 shares and the new guy 51 shares (or any multiple thereof where the total is less than the maximum authorized).

Needless to say, you corporations also needs a set of financial records which will reflect what the corporation received in exchange for the shares it issued - money, services, intellectual property, etc. A corporation should not just issue shares willy-nilly without getting fair value in return.

Finally, whenever two or more people get into business together, even if it is a corporation and not a partnership, I strongly recommend that they document their intended relationship to the fullest possible extent in a written agreement covering what each gives, gets and expects from the co-promotion, including how the relationship is to be un-wound in the event of a falling out, someone's death, etc.