Discussion:C-corp change of ownership

I deal with S-corps more often than C-corps, hence I'm a little gun-shy with moving forward on this issue.

Any help would be greatly appreciated!

So, the stock purchase agreement states that my client has acquired all of the shares of stock (along with a lot of other legalese that keeps recanting the transfer of assets, liabilities, etc.). The articles of incorporation states 1,000,000 shares are available for issue at $1.00 par, and at the time of sale/purchase of the corp, 1,000 shares were outstanding.

Also, the previous stockholder had additional paid in capital of $74k.

At the closing, the previous owner required an immediate payment of $74k; I'm assuming this is to cover his APIC. The settlement agreement from SBA shows that out of the loan proceeds he took out to purchase the corp, $551k was specifically for stock.

So, I would think this can be interpreted in two different ways: 1) He bought 551k shares, therefore the outstanding common stock is valued at $551k, or 2) He bought 1mil shares at a DEEP discount.

Option 1 is probably the more likely scenario, but I can't help help but try to cover all the different possible angles.

As far as actual cash being put into the corp, the answer is yes and no. See, he paid that $74k at the closing, but he borrowed that $74k from a family friend.

Plus, there is the amount of the small business loan and then a promissory note on the side between my client and the previous stockholder. In all, he has about $712k in debt in order to acquire the stock in the corp.

How would all this show up in the equity section? That's what has me somewhat confused. I use the logic that he as an INDIVIDUAL took out these loans and the loan PROCEEDS were instrumental in acquiring the stock, therefore his PIC would be equal to the loans (afterall, his personal loans wouldn't be on the books of the corp, so it couldn't be a liability).

Another issue is that the payments for the loans are being paid by the corp. I understand this is a big no-no, but I just figure that the payments will turn into distributions to my client. This is correct, isn't it?

Ya gotta read the documents.

The agreement says that the purchaser is only buying what was outstanding. So, I guess he's only buying 1,000 shares of stock with $712k debt. Nice.

I'm still so lost as to how I record this transaction on the books. Was I even anywhere close to being right when I deduced that the $712k would be his paid-in capital (obviously less the $1,000 for the oustanding stock)?

The stock purchase agreement says the purchase price of the stock is $664k, stating that the funds go straight from the buyer to the seller, so this number definitely wouldn't be on the books, right?

But, there was that $74k paid up front at closing. It would seem that this would be the buyers APIC. Essentially, the books would stay the same as they were with the previous owner ($1k would be in common stock and $74k would be APIC).

Also, I found the pledge and security agreement talking about the main business loan for $599k and I think it is saying that the BORROWER is my client AND the corporation. Does this mean this is a liability of the corp?

Kidding Tara!!

Isn't he also buying the assets? Seems a bit much for stock only. The assets have to worth something.

Tom

Tom, my understanding is there different options for purchasing a company. One way is to buy out the assets, usually with any debt that is associated with them. Another way is to simply buy all (or even part) of the stock.

I agree with you. I just was asking the question. Of course, I was also asking before the sun was up after looking for a missing dog, so my mind was wandering like it usually does.

Tom