How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask JBaxLaw Your Own Question
JBaxLaw
JBaxLaw, Attorney
Category: Business Law
Satisfied Customers: 11396
Experience:  Experienced in business formation and licensing issues
16110456
Type Your Business Law Question Here...
JBaxLaw is online now
A new question is answered every 9 seconds

I have my own business since 1997 (It was C corp and as of

This answer was rated:

I have my own business since 1997 (It was 'C' corp and as of last year (2009) I transferred to 'S' corp). I received the approval of 'S' Corp in 2009 June. My tax year is from March 2009 to Feb 2010.
In December 15th, I resigned my position and brought in very well known person in my industry to be the company president. I transferred all the shares to him and give him the total control of running the company. I became the sales manager, because thats what I do the best.
In any case, to make the long story short, he signed a letter that within next 2 years if he cant turn the company around, I will take over the company again. There was no money exchange and no legal forms filled out (with IRS or State of California). However, I want to make sure that if he starts to make wrong decisions left and right I wont be responsible for it. What should I do or what forms do I need to fill with Federal / State / Internal signed agreements that will show that I am not liable and that I

First, as to your personal assets, those are shielded from liability due to the actions of the corporation or the president. You would have no personal responsibility if you neither own the corporation or make decisions. So long as the transfer of shares was handled appropriately, that is all is required to remove ownership. Even if you were an owner, your personal assets would be shielded due to the corporate business structure.

 

As to your written agreement with the partner to return control of the business, this would be an enforceable agreement so long as all of the essential terms are in writing and signed by both parties. If the new president refused to comply, you would be forced to file suit to enforce the terms of that agreement.

 

Thank you

Please click on the ACCEPT button for my answer so that I receive credit for assisting you. You may continue to ask follow-up questions after accepting. If the information is helpful, I would very much appreciate positive feedback. Bonuses are also appreciated. The responses do not create an attorney-client relationship and are informational only.

Customer: replied 7 years ago.

So, if I understood correctly if I transfer 100% of the shares to him, he is liable for any mistakes or loans from this point on? See the thing is that the company has been losing money for past 3 years and he thinks he can turn the company around. Last 2 years, I took very little money from the company (like 30-50K w2 per year)... however, this year that he is on the board, I am getting paid salary of 13K per month on W2).

If I would like to buy a house (lets say next year or year after), I dont want the company status be a problem for me (because he is talking of taking some loans - which I never took any loans from banks and financed everythin personally - so I am kind of paranoid).

If I have to pay more, please let me know!

Thanks

Greg

So, if I understood correctly if I transfer 100% of the shares to him, he is liable for any mistakes or loans from this point on?

He would not be personally liable for actions as an agent of the corporation. The corporation would be responsible. As such, you would have no personal responsibility either due to the layer of insulation provided by the corporate structure.

The potential problem would be if the corporation was not run properly. In that case, creditors could seek to "pierce the corporate veil." This means the creditor could reach through the corporation to the assets of the owner which is the other party here. There are many criteria considered in determining whether it is appropriate to "pierce" a corporations "veil." Those factors include whether formalities like corporate meetings were held and whether corporate and personal funds were intermingled. If the corporation has not been properly maintained, then you may have cause for concern at least as to the current owner. Reaching your personal assets would be a separate issue and more difficult for a creditor.

Thank you

Please click on the ACCEPT button for my answer so that I receive credit for assisting you. You may continue to ask follow-up questions after accepting. If the information is helpful, I would very much appreciate positive feedback. Bonuses are also appreciated. The responses do not create an attorney-client relationship and are informational only.
JBaxLaw and 2 other Business Law Specialists are ready to help you