I wanted to bounce this off the board, new client, here is the situation:
-C-Corp - 3 equal shareholders (individuals)
-They are taking small W-2 wages. However, they have been taking distributions for additional income needs for 20+ years and booking them as loans from the corporation to the S/H's.
-S/H A has a $120,000 loan balance, S/H B has a $40,000 balance, and S/H C has a $130,000 balance.
- S/H's A & B want to be bought out by an outside party, C wants to keep working. Neither have the cash available to pay back the loan.
-Value of the shares is roughly $600,000, $200,000 per 1/3 shareholder.
Trying to figure out the cleanest/best way to structure the buy-out of A & B. Initial thoughts...
Corporate Stock Redemption: Corporation buys the stock from A & B, the outstanding loan balances reduce the payout on the stock buy-out. Redeemed stock reissued to new shareholder. The loans are off the company books right away seems like the plus on this end.
or
New Investor buys out the stock directly from A & B (but likely with a promissory note) - as the old S/H's receive payments, they pay back the loan balance.
My main question: I'm looking for pitfalls in either strategy that I might be missing?