Legal Question in Securities Law in California

Re: split stock with spouse

There are three basic approaches to doing it, and two aspects to each of the three ways.

First, the three ways: (1) re-title the shares and reissue the certificate so it shows both names (husband and wife) as community property (or joint tenants or tenants in common); (2) redeem the old certificate showing 100 shares in the name of Mary Jones and reissue two certificates, one to Mary Jones for 50 shares and one to Bill Jones for 50 shares; or (3) issue 100 new shares to Bill Jones. The last method increases the total number of shares outstanding and could cause the corporation to approach or exceed its maximum authorized shares; the first two don't.

So, those are three ways to do it. The other part of the answer is that there are two aspects to whichever way you go - the interspousal aspects and the corporation-to-shareholder aspects. Between the spouses, there needs to be a decision on how the shares will be held, whether it is a gift between spouses or is a consideration being given, etc. This could be an opportunity to look at your estate plans, whether the stock should go in living trusts, etc.

The shareholder-corporate aspects would involve issuing the certificates, making proper entries into the shareholder register, and thinking about how this affects board membership, meeting notices, proxies, etc. Remember that a corporation with three or more shareholders must have at least three directors.

Also I should point out that you need to look at your bylaws and shareholder agreements to make sure you don't have an transfer restrictions, minority holder rights, etc. that the proposed deal would violate.

Finally, if this is an S corporation I believe the new shareholders must be added to a consent form (2553?) - ask the IRS or your accountant.