How to Remove a Shareholder From an S Corporation

By Mike Broemmel
a Shareholder, an S Corporation

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An S corporation (also commonly known as a Sub Chapter S corporation) is owned by one or more shareholders. If the time comes to remove a shareholder from the S Corporation, the corporate code (set of laws governing corporations) in the state where the business was established sets forth the procedure for eliminating that shareholder. The process to remove a shareholder from an S Corporation consists of a number of steps, all of which must be completed to ensure a lawful elimination of that stock owner.

Prepare a resolution to present to the S corporation board of directions. The resolution need not be a complicated document. Set forth the date of the board meeting and a paragraph that "resolves" that a particular shareholder be removed from the corporation. The resolution needs to set forth a provision approving the purchase of the shareholder's stock. (A shareholder is removed from an S corporation through the purchase of his stock.) A signature block is included for the corporate secretary.

Schedule a meeting of the board of directors.

Present the resolution to the board of directions.

Take a vote of the board of directors. The resolution passes with a majority vote of the board of directors. If the resolution fails, the individual remains a shareholder of the S corporation.

Issue a payment to the shareholder to be removed purchasing her shares of stock in the S corporation.

About the Author

Mike Broemmel began writing in 1982. He is an author/lecturer with two novels on the market internationally, "The Shadow Cast" and "The Miller Moth." Broemmel served on the staff of the White House Office of Media Relations. He holds a Bachelor of Arts in journalism and political science from Benedictine College and a Juris Doctorate from Washburn University. He also attended Brunel University, London.