Herten, Burstein, Sheridan, Cevasco, Bottinelli, Litt & Harz, LLC
By Gianfranco A. Pietrafesa, Esq. Member
Our client sold his IT software consulting company. Instead of
receiving cash, he received shares of stock in the buying entity,
which we’ll call Baker Corporation.
In the transaction, our
client’s
company was merged into
Baker. Years after the sale, our
client wanted to reacquire his
company. Baker was going
to distribute certain assets to
our client in exchange for
our client’s shares in Baker.
Basically, the transaction came
to us as a corporate redemption
of our client’s shares and
a distribution of assets to our
client. The transaction very likely would have resulted in
the payment of taxes by both our client and Baker,
which was an unnecessary problem. Instead of doing a
corporate redemption, we structured the transaction as
a split-off. Baker created a subsidiary and transferred
certain assets to the subsidiary. Baker then distributed
its shares of stock in the subsidiary to our client in
exchange for our client’s shares in Baker. After the
split-off transaction, our client owned the subsidiary,
which owned the assets that our client had previously
sold to Baker years ago. The result was a tax-free transaction for
both sides.
As printed in Commerce Magazine March, 2010
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