S-Corp (Re)structuring Question

November 13, 2019

by a searcher from Columbia University in New York, NY, USA

Hey all - Working on getting the right structure on an acquisition with the below considerations:
- They changed from C-Corp to S-Corp within the last 5 years (making immediate conversion back hard)
- I have preferred equity investors (which is not made simple in an S-Corp, without classes of owners)
- I am buying using an LLC (which you cannot have a multi-member LLC buy an S-Corp)

My current best plan is to place my preferreds onto the company cap table, and manage preference in a separate agreement. Later, once I can effect the C-Corp transition, I can roll them onto a preferred share class.

Has anyone dealt with this? Would love advice on this topic, if there's a known best practice.

Reply by a professional
from Walsh College of Accountancy and Business Administration in Detroit, MI, USA

Vik I think you're saying you want to operate in a C-Corp structure after acquisition. This can be easily accomplished by acquiring the S-Corporation by using an ineligible shareholder. If you do this, it will automatically become a C-Corp. It does not matter if the S election was made within the last 5 years. (The 5 year rule would not apply in these facts.) There might be other tax planning opportunities to consider when concluding on what your acquisition vehicle should be. email me if you want to discuss live and we can set up a call - redacted

Reply by a searcher
in Seattle, WA, USA

Short of creating another C-Corp as a holding company (which has its own advantages and disadvantages depending on your future intentions) the simplest route is probably going to be the separate agreement.

+5 more replies.

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