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selling shares of S corp

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    selling shares of S corp

    When clients have bought or sold business, they have always done an asset sale or purchase.

    I have an S corp client where the buyer wants to buy stock, so have a couple questions for the board.

    There is one item that has me stumped. Company owes S/H 100K and has negative equity of 50K. New owner will not be assuming the liability to S/H, so what is my entry to get it off books? Direct to retained earning to make equity positive?

    If we do sale as of 12.31 would there be any issues of current S/H signing payroll and tax returns for 2019 as the date of these would be after the stock sale?
    Last edited by kathyc2; 10-07-2019, 10:04 AM.

    #2
    On the corporation's books, you can transfer the loan to Additional Paid-in Capital. This transaction also may impact your client's outside basis in the stock, if he hasn't used the loan basis already.

    Any checks issued after 12/31 and any returns filed after 12/31 will have to have the new owner's authorized signatures. That could be the current owner if the current owner has a management agreement with the new owner as part of the sale.

    Just went through one of these with my client as of 9/30/19. Started out as a stock sale, and then the buyer asked for the 338(h)(10) election. So it ended up as an asset sale anyway. But there were licenses and contractual agreements that needed to be passed with the stock.

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