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.