QUESTION
I own 45% and my wife owns 45% of a NYS s-corporation. The other 10% is owned by an outsider with no say in anything we do as a business.
Asked on Jun 29th, 2013 on Business Law - New York
More details to this question:
We have no buyout agreement for the shareholders in place and we want to buyout the person that owns the 10%. He made an initial investment of $20,000 11 years ago. Our business has struggled for several years and we want to make some changes and need to buy him out but can't afford to pay him the $20,000 he invested which is what he is asking for. What are my options?
1 ANSWER
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It is possible to eliminate minority shareholders in New York through a so-called "freeze-out" merger. While you can propose a value to be paid for the minority interest, the minority stockholder has "appraisal rights," which means he can force you to pay the fair market value of his interest as determined by a court. If you have a principled reason for believing that the value of his interest is much less than $20,000, then you may wish to consider this approach. However, the transaction costs and attorneys' fees associated with a dispute with this stockholder may quickly eat up any discount from $20,000 that you achieve -- it would make much more sense if his interest were ten or a hundred times as valuable. Please contact my office at (203) 399-1320 if we can help you.
Answered on Jun 29th, 2013 at 3:19 PM