Question QUESTION: A Sub S corp purchased 564 shs of stock from the estate of a deceased shareholder. There are 4 shareholders left, 3 @ 20 shares and one @ 376 shares. Can any shareholder buy all or part of the 564 shs? How is the price determined? Can they be distributed to employees? Who makes this decision?
ANSWER: Hi Robert:
Thanks for the question. The Articles of Incorporation and By-laws should address this situation. If not the shares can be sold or issued to employees based on the fair value of the shares as determined by an independent valuation expert. How long ago was the Treasury Stock purchased and how was the price determined?
John Kirk, CPA
---------- FOLLOW-UP ----------
QUESTION: John, thanks for your response. The Treasury Stock was purchased in 2004. The decedent died in 2001. There was a sharholders agreement in place with a formula to determine the value of the stock. However, the estate would not accept that value nor the valuation done by our accountants (his wife found out we had a 1M insurance policy on him) and we had a three year legal battle before settling at 790K. My main question now is does the remaining majority shareholder have total control over what happens with the treasury stock? There is nothing in the articles or by-laws on this. The shareholder agreement only permits sales to other stockholders.
Answer Hi Robert
Thanks for the follow up question.
The majority shareholder really does not have any reason to sell the stock off as any additional stock issuance would dilute his percentage of ownership (currently 86%).
Also, it would take a board resolution to reissue any of the treasury stock and you would have to get a valuation of what the shares were worth each time you wanted to issue the shares.
Much better to just cancel the shares as to reissue them.
