So I have a small S-Corp incorporated in New York State. The company really hasn't made any money, and is currently only used to hold a piece of IP. Both the President and I (the Vice President) own all the stock in the company.The president of the company wants to leave for tax reasons, and I want to keep it open and use the company for something entirely different.
What's the best way for the president to make an exit? Can he just submit a letter of resignation and give his shares back? And how is his exit recorded with the tax department?
(And yes, yes, I know this is just a website and I shouldn't be taking business/legal advice from random strangers).
He cannot GIVE his shares back (unless that was in his employment contract via a vesting clause). The corp (or you) can BUY the shares (buy all the shares for $1, if you both agree).
One key issue in legal stuff is the concept of 'consideration.' In short, this means someone cannot give something without getting something in return. Fair doesn't factor into it but it must be something, like $1.
You would also likely need to file a corporate resolution that he is no longer on the board and you might need another resolution to change the definition of a quorum (how many people must meet for the meeting to count as an official board meeting).
I don't think you need to notify the tax dept. I've not setup a NY corp before but normally the tax-man's concern is with the corp, not one person (except, perhaps, the board member should the taxes not get paid).
I think just that, at least that's off the top of my head.
I think it's up to whoever owns the company to decide.
You could probably buy his shareholding for a nominal amount.
But sometimes if you are using a company for something entirely different, it is better to start with a clean entity without any history - no tax records etc. After all, they are not that expensive to start up. That way too, your friend will have no possible future claim on the new business.
If it was me, I would buy the IP (if you want it) and put it in a new, clean company, shut down the old one and go from there.