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I want to merge two C Corporations. I have two C corporations

I want to merge two...
I want to merge two C Corporations.

I have two C corporations both owned by my wife and I. Percentages of ownership are the same. I have not been using one for a while. It had one assett, a house, which we just sold this year. There is a gain of about $47,000 on that home according to my CPA. There is also $100,000 of forgiven debt that has not had a 1099 filed. I have cash assets of about $50,000 in the bank.

My other C-Corp has about $150,000 of NOL (which will be used up this year). I currently have consulting income flowing into this corp on a regular basis. I have made over $200,000 of loans to this corporation that it is in the process of paying back to me.

I would like to combine the two, then take the $50,000 or so of cash from the old corporation and use it to pay back some of the loans outstanding to myself.

Will I need an attorney to do the combine? Are there complications because of the taxes?
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Answered in 7 minutes by:
6/27/2013
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,877
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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NPVAdvisor :

Hi,

NPVAdvisor :

Actually, this should be fairly simple if you are the only board member/officer/shareholder


 

NPVAdvisor :

The steps are the following:

NPVAdvisor :




  • Have boards of directors and shareholders of both companies approve the merger.







  • File merger forms with your secretary of state.




NPVAdvisor :

In most states, merging two companies into one is considered a simple reorganization, hence, tax free

NPVAdvisor :

Do be aware that the creditors of the company that becomes subsumed into the other will still have claims against the new, post merger corporation. Just because the name disappears doesn't mean liabilities disappear as well, ALTHOUGH they will still be liabilities of the corporation, as long as you do those things that prtect the corporate veil...... being sure that you recognize the interest income as an individual for example and don't commingle personal and corporate assets
.


NPVAdvisor :

Here's the Utah form for merger

NPVAdvisor :

Articles of Merger

NPVAdvisor :

It would also be a best practice to have a loan instrument in place between you and the corporation

Customer:

Is the "recognize the interest income as an individual" a general example of protecting the corporate veil? Their is no personal liability for any of the income.

NPVAdvisor :

Yep

NPVAdvisor :

Just showing that you're not giving any below krket rate loans to the company

NPVAdvisor :

There's something called the "alter ego" theory in corporate law.... which says...

NPVAdvisor :

IS there's evidence that your company is really just you (an "alter" ego of you) then that corporate veil is pierced, subjecting you, personally, to creditors, lawsuits, etc. of the corporation

NPVAdvisor :

By here, just doing the merger, is not a taxable event ... and ...

NPVAdvisor :

If you are the only director/officer/sharehold sas simple as filing the articles of merger with the state

Customer:

And the IRS is ALWAYS ok allowing corporations to be merged if owners are the same?

NPVAdvisor :

Oh sure, mergers are state law issues. Now, there could be taxable events if there was a sale, or liquidation, etc, but here, there is no cash or ownership changing hands

NPVAdvisor :

As you work through the Utah merger form I linked for you, you'll simply have to decide (and I don't see any effetive different here) which corporation is merging into which

NPVAdvisor :

After that, there will only be one 1120 to file, that's the only tax different... Utah SOS will notify IRS and they will not be lookng for a return from the merged corporation

Customer:

Thank you. This is helpful.

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,877
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Thanks for the positive feedback Mike.


If you'd like to work with ME again just say "FOR LANE ONLY," at the beginning of your next question.


Thanks again,
Lane
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Lane
Lane
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