Q: A much larger agency than mine has given me a very good offer to buy my agency. The acquisition would be by stock purchase. I am worried about a few things that may be trivial, but then again, they may be enough to turn off the buyer altogether. First, I have never issued any actual stock certificates to myself, so how can I sell stock if I don't have any? Second, I have not done corporate minutes or held annual stockholders meetings, which many attorneys say is essential, so I am wondering whether I have a valid corporation at all. Third, my personal car, boat and art collection are owned and paid for by the corporation; I want to keep them, but I am unsure whether I can do so. Finally, will it look dishonest if I show that my corporation owns these things instead of me?
A: You can stop worrying. Many if not most buyers have encountered exactly these problems, and they are easily fixed as part of the acquisition process.
Most corporations that have just one or a few stockholders have probably never issued stock certificates. It is not legally necessary, it costs money to get printed certificates and it can seem rather silly.
However, let us assume that the buyer or his attorney wants actual stock certificates. The simplest way to issue certificates that I have found is to download a blank certificate at a site such as www.corporationstocks.com for about $30, which gives you a Word document that you can fill out and use over and over.
When you fill out the certificate, remember to issue no more than the number of shares in your articles of incorporation on file with your state. Typical articles authorize 1,000 shares, and you can issue one share, 1,000 or any number in between.
Next, if you have never done any corporate minutes, you can do them now. If you have more than one stockholder, have a stockholders meeting to elect members of the board of directors, and then have a board of directors meeting to elect corporate officers. If you are the only stockholder, just sign minutes electing yourself. It will be obvious that you have taken these steps in anticipation of the sale, but that is acceptable and expected.
Try to accomplish the issuance of stock certificates and other documentation before you sign the stock purchase agreement, as the agreement will no doubt require you to certify that these records exist.
Your personal-type assets can be spun off from your corporation just before the effective date of the acquisition. I have never heard of a buyer insisting on getting compensation for the spun-off assets, as buyers are not really interested in anything but income-producing assets.
Be sure to tell the buyer what you are going to do before you do it, in order to avoid looking sneaky. Ideally, provide for the spinoff in the agreement itself, so that there can be no misunderstanding about what you want.
I have never known a buyer to think that a seller was dishonest merely because the business has been paying for the owner's car, boat or other personal-type asset. There may or may not be a legitimate tax reason for such payment, but prospective buyers encounter it often.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].