Business Partners would like to remove a slacker partner

[Captain]

Hello,

We are a 4 year old S corp in California with 5 equal owners. All 5 owners are also employees and we have about 50 employees in the service industry. 1 owner does very little and he usually doesn't even show up for work and we have to make excuses for him to other staff and its embarrassing. The other owners would like the slacker owner not to be part of the business anymore. We are going to a lawyer in a month but thought I would get some information first. We think the owner can be fired from his position in the business but not sure and we would like to buy the 20% stock and disperse the stock evenly to the remaining hard working owners. I hope we're not stuck with him owning the business. We are friendly still but obviously things might get ugly once we approach him to leave amicably. The other thing is we don't want him anymore even when he promises to pull his weight as we know his cycles.

Can someone please advise me? I assume partner problems are a common business issue.

Thank you very much!

[Paul]

If he doesn't sell back his stock you may be able to resort to some dilution strategy to reduce his percentage.

[Freelancier]

The stick here is that you vote to stop paying dividends and stop paying him salary (fire him) and he's still stuck with 20% of the taxes from profits because you're an S Corp.

What's your carrot?

[FullTiltBusiness]

Did you set up a shareholders agreement? Are the partners the only stockholders?

[Captain]

No shareholders agreement, meant to but didn't get around to it yet. Yes partners are only stockholders....