Home > Processes > Adding and Removing Shareholders Of Incorporation and LLC
How do I handle adding partners or shareholders to my entity?
Or removing them for that matter?
In this audio snippet, you'll hear about:
- Partners are added differently than shareholders
- It is a different process for an LLC and Incorporation
- Adding a shareholder – corporation will either issue more stock than number of shares already outstanding, or transfer existing shares to new shareholder
- No direct interaction with state, unless state requires reporting of the transaction
- Stock transfer agreement
- If new shares are issues, then the state will be involved, an amendment to the articles of incorporation must be amended
Audio Transcript
Travis:
How do I handle adding partners or shareholders to my entity? Or
removing them, for that matter.
Yosef:
You're actually asking two or three very different, distinct questions.
Travis:
OK.
Yosef:
Partners are going to be added differently than shareholders will be. Partners are generally members of the partnership.
Travis:
Right.
Yosef:
Shareholders are generally equity owners of the corporation.
Travis:
OK. For this case then, let's remove the partners since this is about
corporations and LLCs and just focus on shareholders.
Yosef:
Again, in an LLC setting you are also going to have partners. So, your
question is actually really good. It is just important to consider that
it will be a different process for both an LLC and for a corporation.
Travis:
OK. Do you want to go over that in the specific LLC and S–Corp questions or do you want to go ahead and gloss over it now?
Yosef:
Let's gloss over it right now.
Travis:
OK.
Yosef:
Generally, adding a shareholder or a partner will actually....I need to
back up here. Adding a shareholder to a corporation can mean one of two
things. Either the corporation is going to issue more stock than the
number of shares already outstanding.
Travis:
All right.
Yosef:
Or it's going to actually transfer some shares of existing stock to a new shareholder.
Travis:
OK.
Yosef:
If it's transferring existing shares to a new shareholder, generally,
this will be a private business matter. It would not have any direct
interaction with a state. Now some states may still require an
informational reporting of who the majority shareholders of the
corporation are. But actually, especially the transaction in
transferring shares to a new shareholder, pretty much you just have
your attorney or you can do it yourself, you can just have a stock
transfer drafted between the parties.
Travis:
OK, sounds pretty simple.
Yosef:
It well could be. Now however, if the corporation decides that its not
going to transfer the existing shares or excuse me, if another share
holder decides that he is not going to transfer existing shares to a
new shareholder. Now, the Corporation is going to create new shares
that would be something that the state would definitely be get involved
with. And that would typically require an amendment to the articles of
incorporation to authorize more shares or perhaps a new class of
shares.
Travis:
OK, and how difficult is that process? Is that something that is
handled by an attorney or is that something that people can do on their
own.
Yosef:
Well, again the setting for while this is taking place may be done in
by yourself but it may also require the use of an attorney. My
experience has been, typically when new shareholders are added to a
existing Corporation, this is where stock transfer is actually
occurring. New shares are issued. There's more going on, other
additional capital is being raised, we are dealing with a corporation
going into a new stage of its business. Generally that would be
something that one should really discuss with an attorney to make sure
that all issues related to this types of developments are addressed
effectively.
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