Legal Question in Business Law in California

Answering this question accurately would require a rather careful review of the facts and circumstances surrounding the creation and start-up of the business, including but not limited to the reasons why you (seemingly) own the business entity and she is the lessee of the business premises. This could be a shakedown, or could be an entirely legitimate demand, but most likely is somewhere in between. It would also be interesting to know who pays the rent, whether it is current, and what the landlord's understanding is as to who is the tenant, although I think the fundamental issue here may turn out to be what your original deal with your sister was at the time the business arrangement was put together. Perhaps there is a partnership under the law -- a situation that can come about without any paperwork, even unintentionally, if the business co-founders behave like partners. I think you're going to need a business lawyer.

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I agree with Mr. Whipple that without a full review of the details it is not possible to give a conclusive answer. It is fairly certain, however, that the law would consider you to have formed a partnership. That by itself does not entitle her to anything specific in terms of ownership share or money, but it does give her the right to dissolve the partnership and get cashed out, or to negotiate a buy-out by you. How much she might be entitled to is completely impossible to tell without reviewing all the details and history of the situation.