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Can I give myself a severance package?

Grand Rapids, MI |

I am the president of a small incorporated business with one other shareholder. We have agreed that it is time to dissolve the corporation. Can we give ourselves severance packages?

Incorporation is in the state of Michigan.

Attorney Answers 4

Posted

Depends, does the corporation have creditors?

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2 comments

Asker

Posted

After we pay off the creditors we will have a little left over. The left over cash is what we plan to use for severance.

Matthew Scott Berkus

Matthew Scott Berkus

Posted

Run the issue by a CPA and find out the best way to distribute the proceeds for tax purposes. But so long as the corporation has no creditors that would go unpaid, there shouldn't be a problem. Do keep up the corporate formalities, have a special shareholder meeting, vote, and record the authorization for severance in the minutes.

Posted

I agree with Mr. Berkus. The tax consequences are probably going to be the tricky part, so running this by a CPA is a very good idea.

James Frederick

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Posted

This is a complex question. The answer is yes you can, but depending on a variety of factors, there may be consequences. Please contact my office for more info and a consultation. - Reese Serra

This advise is only being offered as a courtesy. We do not have an attorney-client relationship and I do not represent you. Additional, the advice I have provided was based on the limited fact pattern provided by you. If the facts differ, my advice may not be correct. If you live in Michigan and would like legal assistance with your issue, feel free to contact me: 586-615-0756 / Reese8484@aol.com (ADVERTISING MATERIAL)

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Posted

Beyond this you may also want to consider what your fiduciary duty to the company is. As president you may owe a fiduciary duty to the company, e.g., acting in the best interests of the company. If the potential severance package is seen as excessive or unwarranted you may be in breach of that duty. As always with these issues, seek advice from an attorney and present the full facts of the case along with the company's organizational documents so you can get an answer based on all the facts of your case.

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3 comments

James P. Frederick

James P. Frederick

Posted

Wouldn't this duty be to the shareholders and not the company? If he and his partner are the only two shareholders, it is probably not a problem. If there are other shareholders, however, you raise a good point.

James P. Frederick

James P. Frederick

Posted

I meant to say, if there *were* other shareholders. It sounds like there are not, in this case.

Ricardo O'Neil Bernard

Ricardo O'Neil Bernard

Posted

James you are correct, with respect to the issue of only two shareholders they can effect the severance packages mentioned above.