This is a somewhat complex question and unique to our situation, but any help, commentary, or direction will be much appreciated.

We have a 20 year old small business C corporation. We are essentially doing a management group buyout/restructuring.

We have formed a new Delaware LLC, the LLC will next buy all the Intellectual Property assets of the existing C corporation for a sum of money. We are brining in a new investor and part of that group's capital contribution will be used to execute the buyout of the IP assets.

The C corporation is going to be just an operating entity forward and whatever net revenue will be paid to the new LLC as royalties.

Question, We each have maybe $75K basis in the C corporation stock.

Since this isn't a spin off or dividend, but rather a buyout. Should we look at converting our C Corporation Stock into the LLC at this formation time?

Would that carry our basis over to our contribution to the LLC at formation?

#1;In a buyout, many preferred shares carry convertibility options, where they can trigger a conversion from preferred into common stock. This conversion would dilute the pool of common stock and throw off the valuation of the shares in the buyout.the llc can choose to convert the preferred shares of the c corp to preferred shares of the llc . In this instance, the llc must keep up the dividend payments to the preferred shareholders. The other option is to buy back the preferred shares at a given price. This option removes the obligation of paying the scheduled dividends, but can drive up the price of the acquisition..As a result, it would generally be advisable either to value the company as if these shares were converted, or to force their conversion before the buyout.



#2;In a friendly buyout, where the c corp shares agrees to be purchased by the llc for cash and/or stock, the price of the stock of the llc and the c corp selling out is always the same.as you own shares in the C corp bought out,. You will still be able to sell the shares for their full market value.

Thanks this is helpful and appreciated. I want to get the plan here as sharp as possible before the attorneys get involved etc.

It is a friendly buyout for sure. Also, we don't have a Preferred issue in the C Corp just all common.

My main concern you answered, as I was wondering about do I trigger a tax event by the LLC purchasing the C Corp stock with new stock stock.

We may just issue new LLC stock for the existing shares of the C Corp and as this may be a zero cash option, I must be very cautious to avoid any paper gain and a tax bill as a result

> basically, it is vital for the corp lawyer to consult a tax lawyer at every stage of an acquisition transaction.only if the price being paid by Acquiring is all cash, the transaction can only be a taxable transaction.hjowever, when even a portion of the price being paid by Acquiring is stock of Acquiring, then it may be possible to structure the transaction as a tax-free reorganization in which Shareholders are not taxed on the receipt of Acquiring stock. In order for a tax-free reorganization to be possible, at least 40% of the value of the total consideration paid to Shareholders must be in the form of stock of Acquiring ;In other words, the nonstock consideration, referred to as “boot”, cannot exceed 60% of the total consideration. If the boot will exceed 60%, there cannot be a tax-free reorganization.
Also, a reorganization requires that Target be a corp for tax purposes.so unless the Target is a corp,either c cor S corp I guess, a tax free reorganization involving the acquisition of the partnership is not possible. It is also not possible for any party to transfer assets to a new or existing corporate Target, and then, as part of the same plan, for those assets to be part of a tax-free reorganization in which Acquiring acquires Target.
Finally, a reorganization might not be practicable if Target will retain a substantial amount of assets that will be transferred to the Shareholders rather than to Acquiring. While some types of reorganizations would permit Target to transfer some of its assets to the Shareholders before Target is acquired, such a transfer would generally be taxable to both Target and the Shareholders.
plz contact tax attroney for more info in detail