One of the most frequently encountered scenarios in the context of a closely held business is the following: individuals X and Y are shareholders of a corporation, X is the majority shareholder (60%) and president of the corporation, and X 
and Y do not have a shareholders’ agreement. Over time, the interests of X and
Family Transfers, Part V: Compensation
“Call it what you want, incentives are what get people to work harder.” — Nikita Kruschev
Most of our clients are closely held, often family-owned businesses. The current owners may be the founders of the business, or they may be a generation or two removed. Sometimes, the owners have children who are active in
Profits or Capital Interest?
A partnership is not subject to Federal income tax. Instead, an item of income or loss of the partnership retains its character and flows through to the partners, who must include such item on their tax returns. Generally, some partners receive partnership interests in exchange for contributions of cash and/or property, while others receive partnership
Need Capital? Closely Held?
A rapidly growing, closely-held business may find itself in need of additional capital. When the owners of such a business do not have the liquidity or disposable assets from which to provide such capital, and with traditional lenders often unwilling to extend the necessary credit on acceptable terms, many close businesses have turned to private
Sales Tax in M&A, Part III: The Income Tax Impact of Sales Tax
We noted earlier that sales tax is often viewed as a “sideshow” to income tax considerations in structuring a deal. Regardless, it represents real economic cost to the payor. To appreciate its “true” cost, however, one must also consider its income tax consequences.
In the case of the seller or transferor who pays the tax,
Sales Tax in M&A, Part II: Bulk Sales
Overview
The buyer in a “bulk sale” transaction – i.e., the sale and purchase in bulk of the whole or part of the “business assets” of a person required to collect sales tax – must file a notice of bulk sale at least ten days before taking possession of such assets or paying for them
Sales Tax in M&A, Part I: The Economics of the Deal
Why are taxes so important to the sale of a closely-held business? Economics. Any deal, whether from the perspective of the seller or of the buyer, is about economics, and few items will impact the economics of a deal more immediately and certainly than taxes. The deal involves the receipt and transfer of value, with
(Un)reasonable Compensation: When Hindsight Isn’t 20/20
In the recent case Thousand Oaks Residential Care Home I, Inc. v. Commissioner, the Tax Court considered whether a corporation’s compensation packages for its owner-employees were unreasonable and thus disallowable as deductions. The facts can be summarized as follows: in 1973, Petitioners “Mr. and Mrs. F.” purchased a struggling corporation called Thousand Oaks Residential
Retiring A Partner: Gone, But Not Forgotten
The withdrawal of a partner from a partnership is one of the most common business transactions. In some cases, the partner leaves amicably; in other cases, the departure may occur after many disagreements and, perhaps, litigation. Regardless of the cause of the partner’s withdrawal, it is often the case that neither the partner nor the
Equity Compensation in a Partnership
The grant of an equity interest by a partnership to one of its key employees should be approached with great caution because it may result in unintended tax consequences, both for the partnership and the partner.1
Many corporate employers use equity-based compensation in the form of stock or stock options to motivate their employees.