The "redemption" issue is concerned with whether this is a disguised dividend.  I don't think you have to worry about that.  But I share your concern about whether "related party" rules apply, even though I don't have an answer.  Is this really an arm's-length transaction, or is she a millionaire making a gift to her less fortunate brother who now effectively gains control of the business and can squeeze out the other investor?  And is he the one who will suggest an audit to IRS?