There are many reasons why a business owner might want to transfer ownership of his or her company to an outside party, whether that transfer is in part or in full. If this is the case, knowing how to accomplish this transfer is advisable. As with any legal concern regarding a person’s business, seeking out the help of a West Palm Beach business attorney for guidance is suggested.
To help business owners better understand what options are available to them, our experienced attorneys are sharing some insight.
Transfer Methods to Explore
Of all of the various types of business structures, corporations are the easiest to transfer. However, before one can proceed with the process, he or she must determine which method is best suited for both the business’ and the individual’s needs.
In a corporation, the company’s stock is what determines ownership. Therefore, the transfer of company shares will always be a necessary step in transferring ownership of a corporation in Florida. Every individual who owns stock in the company will technically own that portion of it, though there are different rights for different kinds of shares. For a stock owner to transfer that ownership, it must fit within any written shareholder agreements. Additionally, a share transfer agreement should be drafted and signed to ensure no legal issues arise. The sale can take two forms:
- Gradual sale. In a gradual sale, the shares will be transferred to the buyer over a period of time while he or she makes installment payments. This can be a better option for buyers who cannot afford one large payment, as well as for easing the transition of key owners.
- Outright sale. When shares are sold outright, the buyer retains all shares and ownership rights immediately by making one lump-sum payment.
How to Determine Which Option is Ideal
The right choice will ultimately depend on the type of corporation one currently owns, as well as the company’s existing shareholder agreement, bylaws and articles of incorporation. For instance, S corporations are not permitted to have more than 100 shareholders under IRS rules, while C corporations have no legal limit on the number of shareholders that can exist within the company. Therefore, transferring ownership of an outright sale may be the only way an S corporation can maintain its status, which affords the business tax exemption. Similarly, the shareholder agreement and other documents established when the company became a corporation will dictate how shares can be transferred, and the steps which must be taken to do so.
How to Complete the Transfer
The best way for business owners to determine which option is best for their particular situation is to consult an experienced West Palm Beach business attorney. Once the appropriate method has been selected, an attorney will play a fundamental role in the actual transfer process, ensuring no steps are overlooked.
If the shareholder agreement does not dictate a different series of steps, this process will typically entail the following:
- Decide how much ownership needs to be transferred. If the business owner wants to keep voting rights, he or she will need to determine how much ownership needs to be retained. Similarly, if he or she wants to cut ties entirely, it will need to be determined how many shares must be transferred.
- Valuation of stock. This involves determining how many shares the current owner has, as well as how much these shares are worth. For example, if the share transfer agreement notes that 51 percent of the company will be transferred, one must first determine what 51 percent truly is.
- Obtain board approval. Though this step will ultimately depend on the requirements outlined in the shareholder agreement, seeking the approval of the corporation’s board of directors is almost always required.
- Draft and sign share transfer contract. This document should outline the amount of stock being sold, all parties involved, how payment will be made, and any other information pertinent to the transfer.
If you are interested in transferring ownership of your corporation, our attorneys are here to guide you through the process. Give us a call today to schedule a consultation where we can learn more about your situation and determine a plan of action.