Stock Sale of Software Provider

When a provider of software for energy businesses, utility companies and municipalities began preliminary discussions with a Columbus Ohio private holding company and management company regarding a sale, they turned to Dinsmore for counsel. We advised the client on a complex, three-part transaction. The complexity was due to the existing operating company being a C-corporation for income tax purposes and the desire of the parties to have the business operating as a partnership for tax purposes on a going forward basis. The current operating company was a C-corporation and all of its shares were owned by its parent company. The first step was for the client to make a cash dividend to its parent and all of its members. The parent company then distributed all of the shares of the client to its members. Next, we negotiated and ultimately closed on the terms of an agreement for the sale of the stock of the client. to the buyer. The final step was to contribute the operating assets of the business to a newly-formed business. The client then elected to be treated as an S-corporation on a going forward basis. As part of the stock sale agreement, the buyer issued promissory notes to two existing minority owners. These owners were then able to contribute the notes to the client in exchange for an ownership interest. As a result, the minority owners no longer had ownership interest in a C-corporation. Their ownership interest was now in a pass-through entity eliminating the potential for double-taxation on any increase in the value of their ownership interests as a result of future growth of the company. We worked diligently to complete the transaction in 2012 so that the shareholders receiving cash would be taxed at the lower 2012 capital gains rate.