Legal Question in Business Law in Illinois

Re: Splitting Inventory After Business Dissolution

If only one shareholder is owed money by the corporation ("shown as loan to company"), that shareholder is entitled to be repaid his debt before there is any distribution with respect to the equity (shares). If the corporation gives the inventory to the debtor-shareholder and the value of the inventory "does not come close to meeting the amount of money invested by primary investor," then the corporation still owes the difference to the debtor-shareholder. So yes, it seems that the partner who invested the funds is entitled to the inventory on those facts.

However, you don't say whether the other shareholder is owed money as well. For example, if one shareholder made a $50,000 loan and the other shareholder deferred $50,000 in salary during the start up period, both shareholders are owed $50,000. If $20,000 worth of inventory was the corporation's only asset, it would not be reasonable to give all the inventory to the person who put in cash. The $50,000 in deferred salary is just as much an obligation of the corporation as the cash loan. I see no reason why one debtor-shareholder should get preferential treatment for his claim.

David K. Staub, an Illinois business lawyer