Mark Pestronk
Q: I am negotiating to sell my agency so I can retire, but something in the back of my mind has been gnawing at me for quite a while. We operate as a corporation, and we file our annual reports with the state, but we have no other corporate records to prove what we own -- no minutes, no elections of officers and directors, no stock certificates and no stock ledger. Wouldn't the buyer need to see all this to ensure that my spouse and I are the owners of the company? What about ARC and Iatan? Don't we need to prove our ownership in order to transfer our appointments to the buyer?
A: In my experience, it is actually rare for a small corporation to have all of its corporate records in order. Many owners don't know what they're supposed to do, other than file annual reports with the state, and other owners know the requirements but never get around to meeting all of them.
However, there is probably nothing to worry about. Most acquisitions take the form of asset sales, and buyers generally do not require documentary proof of ownership as part of the sale. In the asset purchase agreement, you usually just certify who the owners are.
If the buyer does require documentation of ownership, or if you're selling your corporate stock instead of your assets, your attorney can re-create the required records before the closing on the sale. If the buyer requires proof of all formalities, your attorney can draft minutes of annual meetings of stockholders electing directors, minutes of meetings of directors electing officers and authorizing issuance of stock.
Your attorney can also create a stock ledger and stock certificates for you and your spouse to sign. For all of these documents, you would disclose to the buyer that they have been created at the present time but reflect the facts as they existed for the years named in the documents.
If, as is also common, you had stock certificates years ago but have lost them, there's nothing to worry about, either. Your attorney can have you sign affidavits of lost certificates.
By the way, in some states, including California, Delaware and New York, it is not necessary to issue physical stock certificates. Instead, you just have to have a stock ledger showing the issuance of the stock.
One more thing: In some cases, the seller's corporation may actually have been dissolved because of failure to file annual reports for a couple of years in a row. If that has happened, your attorney can get the corporation reinstated before the closing on the sale.
As far as the change-of-ownership process for ARC and Iatan, you can submit change of ownership applications without any ownership documentation, and it is up to the reviewers to decide what, if any, documentation is needed. It should be fairly easy to meet their requests, but if there is a problem, I can recommend a consultant who deals with these kinds of applications on a regular basis.