How to change shareholders in an S-Corp?

In order to use the old corporation, you should have been paying the annual corporation fees to the state that you are incorporated in. You should have had annual meetings of shareholders and board of directors, and those must be doented. If you didn't have an attorney handle your former partner's retirement, then there could be a problem with the paperwork, unless you are an attorney. If you want to do it right this time, hire an attorney, start a new "clean" corporation or LLC, have the shares actually issued, and have a buy-sell agreement with your new partner. I prefer corporations because state LLC laws are not all the same, and the tax laws can get very complicated. Attorneys usually favor LLC's because they can charge more.