US Legal Forms
Legal Resources
Questions & Answers
Corporations
How can we take shares from a shareholder in our company for failure to pay taxes the shares?

How can we take shares from a shareholder in our company for failure to pay taxes the shares?

Full question:

I am a shareholder in a corporation in the State of Idaho. I own 10%, my husband owns 50% and another person owns 40%. We are considering taking away his shares because he failed to pay his taxes and now the company is responsible. How can we remove his 40% shares?

Category: Corporations
Date: 04/07/2025
State: Idaho

Answer:

The rights of shareholders depend largely on provisions in a corporation's charter and by-laws. A corporation must have bylaws, although states generally do not require that corporations file the bylaws with the secretary of state. Bylaws are rules that dictate how
the corporation is going to be run, including rules regarding the conduct of corporate officers, directors, and shareholders. Corporations need to follow certain corporate formalities such as updating their corporate records, including bylaws, which are fairly easy to amend.

A corporation’s board of directors elected by the shareholders have a fiduciary duty to act in the best interests of the corporation. A director who breaches this fiduciary duty may be sued by the shareholders and held personally liable for damages to the corporation. Directors may discuss issues affecting and make decisions about the corporation at regularly held or specially called board meetings as allowed in the bylaws. There must be a quorum present at the meeting
before the board can make a decision affecting the corporation.

When a corporation engages in wrongdoing, such as failure to correctly pay taxes, the people behind the corporation generally are protected from liability because the corporation is a legal identity of its own and is liable for its acts. However, courts may in some cases ignore the
separate corporate identity and render the shareholders, officers, or directors personally liable for acts they have taken on the corporation's behalf. Courts will do this if a shareholder, officer, or director has engaged in fraud, illegality, or misrepresentation.

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

Is a shareholder liable for corporate taxes?

Generally, shareholders are not personally liable for corporate taxes. A corporation is a separate legal entity, meaning it is responsible for its own debts and obligations, including taxes. However, if a shareholder engages in fraudulent activities or fails to adhere to corporate formalities, a court may hold them personally liable in certain situations. It's advisable to consult with a legal professional for specific circumstances.

Are husband and wife considered one shareholder?

In most cases, a husband and wife are considered separate shareholders unless they hold shares jointly. In a corporation, each spouse typically owns their portion of shares independently, affecting voting rights and ownership percentages. However, in certain business structures, such as community property states, ownership rules may vary. Legal advice can clarify specific situations.

What is the 10 percent shareholder rule?

The 10 percent shareholder rule refers to regulations that apply to individuals who own 10% or more of a corporation's stock. These shareholders may have additional reporting requirements and can influence corporate decisions significantly. This threshold is important for tax and regulatory purposes, especially regarding certain corporate governance rules.

Can a spouse be a shareholder?

Yes, a spouse can be a shareholder in a corporation. They can own shares independently or jointly with their partner. The ownership structure will determine their rights and responsibilities within the corporation. It's important to review the corporation's bylaws to understand any specific provisions related to shareholder ownership.

Is a husband and wife LLC considered a partnership?

In many cases, a husband and wife LLC can be treated as a partnership for tax purposes, especially if they choose to file as such. However, they can also elect to be treated as a sole proprietorship if they are the only members. This classification affects how income is reported and taxed. Consulting with a tax professional can provide clarity on the best approach.

Are husband and wife considered one shareholder in S corporation?

In an S corporation, a husband and wife can be treated as one shareholder for certain tax purposes if they file jointly. This allows them to meet the shareholder limit more easily. However, they still maintain individual ownership rights unless shares are held jointly. It's advisable to consult with a tax advisor for specific implications.