“Business Purpose” And Dividing The Family Corporation: Think Before You Let it Rip

April 01, 2019

Lou Vlahos, tax partner at Farrell Fritz, will present this Celesq webcast.

The “family” is sometimes described as the smallest social organization. Its members often comprise the entire ownership and workforce of another social organization – the business organization.

As in society generally, business organizations, regardless of their size, are owned and operated by individuals whose interests in and visions for the business, though usually aligned, may diverge to the point of jeopardizing the continued health and viability of the organization, not to mention of the family.

In extreme circumstances, one feuding member of the family will try to buy out the other. Alternatively, they may decide to divide the business between them, with each taking a share.  Although such a division may sound like a fairly simple, straightforward operation – in fact, it may be from a transactional perspective – the tax consequences thereof may be debilitating for the business if they are not considered and planned for well in advance.

This program will review the tax consequences attendant on a division of a family-owned business, including the requirements for accomplishing such a division on a tax-deferred basis in the case of a business that is organized as a corporation, and how one requirement in particular – i.e., that the division be undertaken for a business purpose – may be more difficult to establish in the context of a family setting.

The program will also describe and compare the consequences of a division where the business organization is formed as a partnership or LLC.

Participants will receive 1 CLE credit.