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Ask a Lawyer -- Corporations
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Question: My son-in-law is trying to buy the 20 year-old Oklahoma C-Corporation that he works for. His boss holds 95% of the shares with 5% held by someone with whom the boss has had a hostile relationship for the last 15 years. The boss has not paid the minority shareholder anything over the last 20 years, taking profits out of the company as special "bonuses" to himself. He has also paid for personal assets with company funds and put them in the company name and included them in the assets listed on the company's tax return. Now that he is selling his shares, he has listed significantly less assets on the list of assets owned by the company (for the purposes of my son-in-laws business loan)telling my son-in-law that he is not getting all the assets, only the ones the boss decides to sell him. Could this cause problems for my son-in-law come tax time? The bank seemed fine with my son-in-law having 95% ownreship, but the SBA won't guarantee the loan unless my son-in-law can get 100% of the stock. The boss keeps saying the just selling his stock, but I thought 5% of those assets belong to the minority shareholder and the boss can't sell and keep 100% of the sale. Is that true? I thought, as majority stockholder, he has the authority to sell the assets but the money has to go into the corporation. He is also taking all the cash in the corporation and future payments for work completed before the sale. Also, can the boss move the company assets around like that without owning 100% of the stock. Can the minority shareholder come back on my son-in-law for amounts the boss did not pay him? Why would the SBA require 100% ownership, when my son-in-law would have majority ownership with the 95%? Response: You've asked several questions regarding a substantial transaction. Obviously, your son should have an attorney represent him. I have just a few comments on the facts presented above. Can the "boss" just sell his 95% stock ownership in the corporation and not the assets? Yes. But I'd be highly against such a transaction if I were the buyer. First, all debts and liabilities are assumed in such a transaction. Given the unusual bookkeeping engaged in by the "boss", there could be all sorts of hidden liabilities. Also, the buyer is walking into a situation with a minority shareholder who is not a happy camper. There are tax disadvantages as well to purchasing stock instead of assets. Your son should discuss same with a tax lawyer or accountant prior to entering into the transaction. Submitted: 12/03/2007; Barbara, Oklahoma Response: 12/03/2007; JJR Add A Comment |
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