Liquidating trust eligible shareholder s corporation

22-May-2020 16:10

In theory, your corporation could last forever, but in reality, many corporations eventually cease to exist.

Part of dissolving your corporation involves liquidating corporate assets since the corporation can’t own assets when it is no longer in business.

An S corp is simply a C corporation that makes a special election for tax purposes. Nonprofit organizations under section 501(c)(3) and tax-exempt organizations under section 501(a) are also permitted to own stock.

Instead of having to pay the corporate tax, an S corporation passes its income and losses through straight to the shareholders. However, not all corporations qualify to be S corps. Although most trusts are excluded from ownership, certain types of trusts, such as qualified sub-chapter S trusts (QSSTs) and electing small business trusts (ESBTs), are permitted to own stock without disqualifying the S corp election.

For example, you could include a provision stating only corporate officers can vote for a liquidation plan or that the corporation must hold a meeting of shareholders before the liquidation plan is approved.

If your bylaws give your officers authority to approve dissolution and establish a liquidation plan, the consent of a majority of officers is typically required to begin the dissolution and liquidation process.

Most entities, such as partnerships and corporations, are prohibited from being shareholders in S corporations. The estates of deceased shareholders can hold the S corp stock.

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Therefore, you must determine how much your corporation owes to each creditor.The shareholders’ final federal tax obligations are based on the original price the shareholder paid for his interest in the corporation and whether the assets are sold at a gain or loss.

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