Can I sell my company’s contracts to another company I own?

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Can I sell my company’s contracts to another company I own?

I am 50/50 with my business partner in an S-corp, I am president he is the secretary. Our business relationship is not going well. As president can I sell any of the contracts we hold to a new company I am starting?

Asked on November 10, 2011 under Business Law, North Carolina

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

If, as president, you have the authority to sell or assign those contracts, then you could do so, with the following restrictions or considerations:

1) If the contracts themselves do not allow assignment, that is enforceable.

2) If the company's articles of incorporation or any operating agreement(s) bar transactions with owners or officers or entities owned by them, that is enforceable.

3) If you do not sell the contracts for their fair value, as if this were an "arms length" transaction with a third party, you will have breached your duties to the S-corp and you partner and could be sued by the company (e.g. by the partner, bringing a lawsuit on behalf of the company) or by your partner directly for this breach. Any sale must be fair to the S-corp to avoid potential liability. ("Fair" does not require top dollar; but it must be a deal you would have entered into with a third party).


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