If a majority shareholder in an S corporation is in personal bankruptcy, and those shares are an asset that the bankruptcy trustee can sell, does that shareholder have any voting rights in the corporation? Can the remaining shareholders, by majority vote, sell the corporation?
3 Answers from Attorneys
it's a matter of corporate law of the state in which the corporation is organized, not bankruptcy law.
Generally, the bankrupt shareholder will retain voting rights unless and until the trustee sells the shares. Whether a buyer of the shares may vote those shares, generally it depends upon the state corporation code. The corporation, by a vote of the remaining shareholders would not sell itself; what you are suggesting would instead be a vote to dissolve the corporation.
Under federal bankruptcy law the Trustee will have the same rights as the shareholder had. Without knowing your state law and seing the corporate paperwork, there is no way any lawyer could answer you. Most trustees, if the corporation has value, will agressively pursue any corporate rights they can. In these cases, the other shareholders need their own lawyer, and obviously the bankrupt debtor needs one. This is not something you will answer online.
You have not provided enough information to get a full and complete answer. The shares become part of the bankruptcy estate, but they could also be returned to the debtor if they are exempt under the applicable law. The answer may also be different in a Chapter 7 versus a Chapter 13 bankruptcy.
Other factors such as state law or the exitence of a buy/sell agreement might impact the answer as well. You should see a local business attorney for further assistance.
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