Legal Question in Business Law in Pennsylvania

A contract entered into and signed by Person Z, Person W and Company X states the following:

Person W wishes to acquire Person Z�s 15 shares of stock in Company X

Person Z wishes to relinquish 15 shares of his stock in Company X, if Company X forgives a previous $15 loan from Company X to Person Z.

Question: After the transaction is completed, does Person W own the 15 shares or does Company X own the 15 shares?

Back ground Information:

Company X is a closely held, non-public, Pennsylvania C Corporation. The 15 shares are about 30% of all the outstanding Company X stock. Person W is the President and CEO of Company X


Asked on 8/14/10, 12:30 pm

1 Answer from Attorneys
Sharmil McKee McKee Law Office

Great question. It is up to the shareholders. The shareholders can authorize the company to repurchase Person W's share. Or the shareholders can authorize Person Z to sell his/her shares to Person W. The shareholders will also have the power to authorize the company to forgive a loan between a shareholder and the company. This, of course, assumes that the contract you are referring to does not specifically dictate what should happen under the circumstances you are describing. And my answer also assumes that your bylaws do not deviate substantially from the Pennsylvania Code.

On the other hand, I strongly encourage you to discuss this situation with a business attorney and a tax attorney. If the company forgives a loan, it will be treated as income for tax purposes, especially because the company is a C-corporation.

Good luck.

Sharmil McKee

Business Attorney

blog.mckeeoffice.com

Read more
Answered on 8/21/10, 11:35 am


Related Questions & Answers

More Business Law questions and answers in Pennsylvania