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Category: Business Law
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Experience:  20 years experience in business law - sole proprietor, partnership, and corporations
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Hi I own a small bussines INC and have a question in regards

Customer Question

Hi I own a small bussines INC and have a question in regards XXXXX XXXXX stock certificates.
I'm listed in the corporation as a VP my kids own half of the shares .The other owner passed a way. Her husband has many debts and do not want the certificates under his name. Could be possible to call a minute and sign the shares back to ther corporation until a later date?(when he is clear of debt)Thanks
Submitted: 1 year ago.
Category: Business Law
Expert:  Law Pro replied 1 year ago.

Welcome to JustAnswer! My goal is to do my very best to understand your situation and to provide a full and complete excellent answer for you.

My name is XXXXX XXXXX I'm going to assist you with your question.

Please bear with me if you believe my answer isn’t coming fast enough because I’m also working with other customers too. I apologize for any seemingly late response.


Is this a sub S corporation?
Customer: replied 1 year ago.

yes it is


 


 

Expert:  Law Pro replied 1 year ago.
S corporations do not pay any federal income taxes. Instead, the corporation's income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns.


In order to change the ownership of a corporation, shares must be sold from one party to another; for a sale to occur, there must be a financial value associated with the transaction. In arms length transactions, the buyer and seller often perform valuations of the shares to determine the purchase price.


The problem is - is that you would be transferring the shares for no consideration and then potentially transferring them back for no consideration. Attempting to effectively defeat the claims of creditors - a fraudulent conveyance.

So, basically, no you can't do that.


Certainly she can transfer the shares back to the corporation or other owners - but if she didn't get fair market value if the creditors found out it would be a problem.

Moreover, they probably would find out because if they filed suit against his estate - they could probably most likely ask for copies of past years tax returns and realize that there was a transfer of ownership. They would ask - what did you get for the shares or interests in the S corporation. If not fair market value it would be determined that it was a "sham" transaction or fraudulent conveyance and ask the court to set aside the transfer.

You and the owners of the S corporation would get dragged into the litigation.


So, although it can be done - I would advise against it.



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Law Pro, Attorney
Category: Business Law
Satisfied Customers: 24645
Experience: 20 years experience in business law - sole proprietor, partnership, and corporations
Law Pro and 3 other Business Law Specialists are ready to help you
Customer: replied 1 year ago.

So I could sale her shares for money/

Expert:  Law Pro replied 1 year ago.
Yes, certainly. But you would also be under no requirement to sell them back either down the road.
Customer: replied 1 year ago.

Thanks ,

Expert:  Law Pro replied 1 year ago.
You're welcome. Thank you for using JustAnswer.

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