Business FAQs

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Question:
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Category: Business Law 
Location: NJ 
Subject: Deadlocked S-corp 

12 years ago, we formed a Delaware S-corp with 1 - 50% shareholder and 2 sharing the other 50% (28 + 22%). Now, the business does $80,000,000 yearly sales and there is a fundamental rift between the the two 50%blocks. One side wants to grow more, the other wants to take some chips off the table. 

The board is deadlocked; there is no termination clause, no arbitration clause, and the 50% that wants to grow does not want to let the other 50% out of the deal. The original shareholders agreement never contemplated that we would be this successful. How to resolve such a mess? 

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Reply: 
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Category: Business Law 
Location: NJ 
Subject: Re: Deadlocked S-corp 

You need separate legal counsel. A good tax and business attorney can explain the options and try to resolve the issue while keeping the business successful. 

Some of your choices are: 

1. Having one set of shareholders purchase the interest of the other shareholders;

2. Splitting the disputed portion of the business into a different corporation and selling it while keeping the rest of the business;

3. Working on an amendment to the Shareholders' Agreement to put in a dispute resolution mechanism.

I hope this helps! 

Ron Cappuccio