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How do I divest myself of S-corp shares? I am a shareholder (11.1%) in an Indiana sub-chapter S-corporation and want out!
Fishers, IN
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Posted 4 months ago in Corporate / Incorporation
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Shares were an incentive to join the company but are creating a tax problem. They cause shadow income and associated income taxes for which I have difficulty getting the corporation to pay and when they do give me a payout to cover taxes it then becomes income for the following year. If I would have to pay the taxes myself I would be ruined. I need to return the shares but do not want to be at risk for capital gains. My agreement for the shares does not allow me to sell to a third party, require the corp to buy-back on demand or use as collateral for a loan. The shares have value on paper but are totally worthless to me short of the company being sold and there is NO chance of that happening. My resignation would return the shares to the corp but of course I would be left unemployed.
Answers (3)
Franklin Moore Mclaughlin IV
This attorney is licensed in California and 2 other states.
Posted 4 months ago.
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You need to consult a local corporate attorney. Some state laws require distributions to cover taxes for S corporations. As a minority shareholder you have certain state law rights. Plus, the distributions are probably not taxable to you, since the income was already allocated to you on your Schedule K.
Mark L Rosenberg
This attorney is licensed in Dist. of Columbia and 1 other state.
Posted 4 months ago.
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You should definitely talk to the officers of the company about buying back your shares, if you do not want them. Even if they refuse to buy them back, there may be state law that allows you to protect your interests as a minority shareholder. Do you have an employment agreement requiring you to sell the shares if you leave the company. You should definitely retain corporate counsel to represent your interests.
kriley
Posted about 1 month ago.
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What you are encountering is "Minority Shareholder Freeze Out". Start doing research on "Minority Shareholder Oppression" for your jurisdiction. If the other shareholders are receiving actual cash along with their "shadow income" and you are not, you may have grounds for action against the company. I don't have time tonight to go into further detail on this but suffice to say, you are probably not powerless in this matter.
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