Selling S Corporation Stock – Are You Sure?
February 14, 2020
Lou Vlahos‘ blog post “Selling S Corporation Stock – Are You Sure?” was published in the December 2019 edition of the National Society of Accountants’ magazine Main Street Practitioner.
Below is an excerpt from the article:
Much has been written regarding the limitations of the S corporation, especially the requirement that it have only one class of stock, and the prohibition against its having nonresident aliens, partnerships, or other corporations as shareholders. The fact remains, however, that there are thousands of S corporations in existence, out of which many closely held businesses operate.
For these businesses, the satisfaction of these requirements – i.e., living within these limitations and the attendant “lost opportunities”– is the cost of securing and maintaining the corporation’s status as a pass-through entity for tax purposes.
There is one point in the life of the business, however – perhaps the most inopportune time – at which a corporation’s failure to satisfy these requirements or, stated somewhat differently, its inability to demonstrate that it has satisfied them, may cost its shareholders dearly. I am referring to the sale of the business and, in particular, the sale of all of its issued and outstanding stock.
Click here to read the article.