Legal Question in Business Law in California

Corp. Shares

How does a one person corporation give half of its ownership to another person?

Asked on 6/03/08, 2:46 am

3 Answers from Attorneys

Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Corp. Shares

There are two possible ways to do this. One is for you to sell half of the shares you own. The other is for the corporation to issue sufficient new shares to the person to create a 1/2 interest in that person.

Example: You own 1,000 shares of XYZ Corporation. Under method #1, you sell 500 shares. Each of you end up owning half of XYZ (500 shares each).

Under method #2, XYZ issues 1,000 shares to the new guy. Each of you end up owning half of XYZ (1,000 shares each).

Ask you tax guru if there is a reason to prefer one method over the other. If you are an "S" corporation, probably not, but do inquire.

When issuing additional shares, be sure not to exceed the total number of shares authorized by your Articles of Incorporation.

When adding a stockholder by any method, be sure you have at least the legally-required number of directors (at least two for a two-stockholder corporation).

If you are an "S" corporation, be sure the new holder signs a consent. Look at the instructions for IRS Form 2553 for the requirements.

Give careful thought to whether you are making a gift of shares or selling them for fair value. Making a gift is likely to have tax consequences for the donor.

As Mr. Stone points out, be aware that corporations owned exactly 50-50 by two persons are likely to deadlock in voting at board meetings, etc., so think that one through thoroughly.

Finally, make sure you have filed, or will file, a declaration of exemption under Corporations Code 25102(f) or other applicable provision of law to be exempt from the requirement to register securities.

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Answered on 6/03/08, 12:10 pm

Terry A. Nelson Nelson & Lawless

Re: Corp. Shares

By following all the rules of Corporate record keeping, filing all the proper notices to the state and other agencies, etc. Do it wrong, and you risk legal problems. If you don't know how to do it, hire an attorney that does. Feel free to contact me if serious about getting the legal help you need, including education on how you're supposed to be documenting a corporation's business.

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Answered on 6/03/08, 1:43 pm
Michael Stone Law Offices of Michael B. Stone Toll Free 1-855-USE-MIKE

Re: Corp. Shares

Sell half of the shares of stock you now hold for a nominal price. If you ever want to get anything done, sell 49%.

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Answered on 6/03/08, 4:01 am

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