Discussion:Sell of C Corp Stock
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Discussion Forum Index --> Accounting Questions --> Sell of C Corp Stock
| 1 October 2009 | |
| I have a client that formed a C Corp and made an asset purchase for a store. He is making payment to the former owner. The former owner has decided that he wants to own stock in the corporation that is making payment to him for the store. He would like to consider the amount still owned on the asset purchase as his investment for the shares of stock. Any suggestions on how to handle this? Does the C Corp have to consider the amount reinvested as income from debt foregiveness? Is there any issue with the fact that the new share holder will be the one that owned the assets originally? | |
| 1 October 2009 | |
| I am a bit confused here. Your client formed C-Corp. So it wasn't owned by anyone before. But then you say that this C-corp had a previous owner, right? | |
| 2 October 2009 | |
| New C corp and making payments to former owner of a store that new C Corp purchased.
If your C Corp owner believes trading the debt amount for a share of his Corp is a fair price AND wants to take on another shareholder this could work without a tax problem to your C Corp. I'd make sure original C Corp owner still had a majority interest and control. If making this trade represents a significant discount on the value of the stock interest you could have a problem. I'm not very up on those issues but I know they exist. The C Corp itself issues stock and brings in a new stockholder. Debit your books for the amount of the debt owed. Credit this amount for the appropriate dollars to common stock (charter will tell you if a par value per share) and excess to Paid in Capital. Your person that sold the store however may have been reporting an installment sale as payments were collected and now have a spike in income from being treated as paid in full. Suggest your clients seek legal advice to structure a buy/sell agreement or whatever else may be recommended. | |
