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socrateaser
socrateaser, Attorney
Category: Business Law
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Experience:  Retired (mostly)
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I signed up for the monthly service! My business partner had more detailed questions of the above. Can you let me know if my questions make sense. I have added specific details which I think will help you better answer the questions.



Questions for correct structuring of Live Right Wellness Centers™ (LRWC)


On 5/21/12 LRWC incorporated to an S-Corp. We used form 2553 and on Part I (number of stock owned/%ownership) we designated 5,000 each to two principles of LRWC.



On 5/21/12 we also used form ARTS-GS Articles of Incorporation of General Stock. On box # XXXXX we designated the total # XXXXX shares which the corporation is authorized to issue as 10,000.



Then on 7/13/12 we filled out The Unanimous Written Consent in Lieu of First Meeting of the Board of Directors. The # XXXXX shares was set at 5,000 @$100 for each principle. A .001 value.



Then on 7/18/12 we filled out The Unanimous Written Consent in Lieu of First Meeting of the Board of Directors as an addendum to the above. The # XXXXX shares was set at 5,000,000 @$25,000 for each principle



Then on 7/21/12 we filled out a Certificate of Amendment of the Articles of Incorporation changing the number of shares to 10,000,00.



We then sold 200,000 shares at $1 per share to20 investors at 10,000 shares each.



The following was the agreement:



CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM ONE



Up to 1,000,000 Shares of Common Stock at $1.00 per share

Maximum Offering - 200,000 Shares

Minimum Offering - 10,000 Shares

Minimum Purchase Per Investor- 10,000 Shares at a $1.00 per Share



This Confidential Private Placement Memorandum (the "Memorandum") has been prepared in connection with an offering (the "Offering") of up to 1,000,000 shares of Common Stock, $1.00 par value (the "Shares") of Live Right Wellness Centers (the "Company"). The minimum offering amount is 10,000 ("Minimum Offering Amount"), and the maximum offering amount is 200,000 ("Maximum Offering Amount"). The minimum purchase per investor is 10,000 shares, or $10,000.00. Officers and directors of the Company will make offers and sales of the Shares; however, the Company retains the right to utilize any broker-dealers registered with the National Association of Securities Dealers, Inc. ("NASD") and applicable state securities authorities to sell all or any portion of the Shares. If the Company so elects, it may pay such broker-dealers a commission in the amount of up to 10% and a non-accountable expense allowance of up to 3% of the proceeds they have sold.


The following table sets forth certain information, as of September 7, 2012 and as adjusted to give effect to the Offering, regarding the beneficial ownership of the Common Stock by (i) each beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii) each director of the Company, and each executive officer of the Company, and (iii) by all executive officers, directors of the Company as a group.



Principle 1: 5,000,000

Principle 2: 5,000,000




We now have 9 million 800 thousand shares left.


Here are our question in regards XXXXX XXXXX above.



The shares sold off were for capitalization of the business only. It was not for principal gain. Does a certain amount of shares need to be designated for the sale of stock in the corporate business minutes or anywhere else like the state or IRS?

What should be done with the remaining 9 million 800 thousand shares that has a 50/50% ownership of the LRWC and its principals? Does the corporate minutes need to reflect any value or authorization of remaining stock?

What is the best way to limit any tax liability of stock sold and remaining stock?

Is the stock sold to investors taxable?

When additional stock is sold off does that represent a % ownership in the corporation or only the value of the stock?

Is the value of the stock prior to being sold a reflection of the corporate minutes, the stock offering agreement, or both? How is the value of the stock determined once it is sold?
Submitted: 1 year ago.
Category: Business Law
Expert:  socrateaser replied 1 year ago.


The shares sold off were for capitalization of the business only. It was not for principal gain. Does a certain amount of shares need to be designated for the sale of stock in the corporate business minutes or anywhere else like the state or IRS?

What should be done with the remaining 9 million 800 thousand shares that has a 50/50% ownership of the LRWC and its principals? Does the corporate minutes need to reflect any value or authorization of remaining stock?

What is the best way to limit any tax liability of stock sold and remaining stock?

A: If this is original issue stock, purchased by investors from the corporation and held as investment capital, then there is no tax liability, because the proceeds of the stock sale is not taxable income.

Is the stock sold to investors taxable?

A: No, unless the management is distributing the proceeds to itself as profits, in which case, the management is engaged in securities fraud and tax fraud, because the investment was misrepresented to the investors as an investment, but is not being used for that purpose.

When additional stock is sold off does that represent a % ownership in the corporation or only the value of the stock?

A: Each share of stock represents ownership in the corporation in proportion to the ratio of shares owned over the shares outstanding/sold.

Is the value of the stock prior to being sold a reflection of the corporate minutes, the stock offering agreement, or both? How is the value of the stock determined once it is sold?

A: The value of anything is equal to what a buyer and seller would agree to as part of an "arm's length transaction." In a market where a stock is easily traded, the value changes from millisecond to millisecond throughout the trading day. With a closely held stock, such as yours, the value of a share is usually "book" value, i.e., corporate assets minus corporate liabilities divided by number of shares outstanding. However, there are other ways to value a closely held stock, e.g., if the corporation generates regular income, then the income based upon a reasonable rate of return, can be used to produce a "net present value" calculation of value.

Example: Corporation produces $1.00 per share, net pre-tax income, annually. If we assume that the risk-reward ratio for the investment in the corporation is a 10% annual return, then the stock is worth $10.00.

Hope this helps.

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socrateaser, Attorney
Category: Business Law
Satisfied Customers: 34147
Experience: Retired (mostly)
socrateaser and 10 other Business Law Specialists are ready to help you
Customer: replied 1 year ago.

Sorry or the delay in getting back. I had an unexpected trip to the East Coast. Here are few other questions my business partner wanted me to ask.


 


1. Can we release shares at $1.00 a share then have the board approve to raise them to $2.00 per share?


 


2. If so, do we need to be aware of any tax issue?


 


3. Once we raise the shares to $2.00 can we sell shares to the original $1.00 per share investors at anytime to increase their holdings at what they originally purchased at ($1.00) or do we have to sell at the higher amount?


 


4. If we have a quarterly board meetings as required by the state can we also have additional meetings at anytime? If so, do these meeting have to be documented?


 


5. At the beginning when our shares were valued at $.01 per share as listed in our articles of incorporation. This was an error and was suppose to be .$001. Is there a way to change this value? Can the board change this value? If so, do we need to notify anyone?


 


6. Lastly, are the founders allowed to grant themselves shares or do we have to pay for them?


 


Thanks again!

Expert:  socrateaser replied 1 year ago.
Please provide a positive rating for my original answer in this Q&A session, and then open a new Q&A session with my userid at the beginning of the question (e.g., "To socrateaser"). That way, I will be compensated for each of my answers.

Thanks for your understanding and cooperation.

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