WHAT IS THE TAX SITUATION FOR PREFERRED EQUITY BEFORE CONVERSION?
I have some high-level tax questions I was wondering if you could help me with. While I fully understand this is not professional tax advice, I'm curious about the overall tax situation in a self-funded deal where the searcher hold the common equity and the external equity investors own preferred equity (and assuming NewCo is an LLC or other type of passthrough entity). Who are liable to the IRS for the profits generated by the firm?
- Is it the searcher holding the common equity?
- Is it the preferred equity holders?
- Is it a combination of the two?
Thanks for your insight on this. It may be a rudimentary question, but I'm struggling to get to a good answer.