Hello all!
I have a client that is a law firm with two shareholders, at 65/35 ownership. I have worked with them for a while and they have previoulsy always basically emptied the bank account around year-end, functionally keeping their basis around 0.
This year, the minority shareholder is leaving the firm. They settled a large case this year, and distributed most of the proceeds through salary and distributions, but left around $400k in the bank, something they've not done in the past. With the minority shareholder leaving (35), the majority (65) shareholder is wanting to pay out 35% of the bank balance (around $140k) for 35's stock. As far as I can tell, there's nothing in the operating agreement requiring any distributions, but it doesn't feel exactly right, given that 35 is already paying tax on 35% of the income for the year. I suppose it would give him basis in the shares, which probably negate any capital gains, but it seems like 35 is getting shorted, especially considering the past activity.
Has anyone encountered anything similar? If so, was there a successful resloution that was amenable to both parties? Thanks in advance!