Legal Question in Business Law in Utah

How to force a partner to sell his stock

I am forming a corporation with three other partners. I have little faith in one of the partners and would like know what measures we can take to allow us to get rid of him in the future if he (as I suspect) becomes a burden to the company. In other words what can we do to force him to sell his stock back to the company or to us as individuals if the need arises. I realize that the smart thing would be to not enter into business with a partner that you don't have faith in, but the other two partners think that he will be very valuable. I am willing to take the risk if there is a way to get rid of him whould the worst happen.

Cheers,


Asked on 3/16/05, 7:21 pm

1 Answer from Attorneys
Alvin Lundgren Alvin R. Lundgren, L.C.

Re: How to force a partner to sell his stock

If you form a corporation (or partnership), there should be by laws (or an operating agreement) which outlines the duties of each active participant. If you form a corporation and issue stock, you may be limited in your ability to 'get rid' of a poorly performing stockholder. You might be best advised to either create a scheme where there are more than one kind of stock, or stock which is conditional. Any time you enter into an agreement you and your 'partners' need to understand the risks and consequences. You may want to hold some or all of the risky partner's stock or ownership conditioned on performance. It is imperative you create quality by laws.

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Answered on 3/16/05, 8:56 pm


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