But there is a point in the life of the company – perhaps the worst time – when a company`s failure to comply with these requirements or, in other words, its inability to prove that it has managed to cost its shareholders dearly. I am referring to the sale of the business and, in particular, the sale of all issued and outstanding shares. It will also probably be necessary for the buyer to withhold or intervene a larger part of the purchase price for a longer period. It may be that the buyer wishes to keep the business intact – as an ongoing business – perhaps after finding that the business has little debt,[xx] while acknowledging that it has significant potential as it is; only the management of the company must change. In the case of a target company S, the buyer may require the company and its shareholders to have the following assurances and covenants (among many others): that the objective S company was at all times a validly elected company S and that it remains as such until the conclusion; the company is not liable for the incorporated income tax; that they will not revoke the company`s « S » choice, take action or take steps to terminate that choice (with the exception of the sale to the buyer); and, at the option of the buyer, that he makes a choice to treat the sale of shares as a sale of assets for tax purposes. . . .
[xxvi] You will recall that the character of the profits – for example, the ordinary income from the sale of receivables or the depreciation from the sale of machinery – is transferred to the shareholders of the target company S. The maximum federal tax rate for ordinary income included in a person`s gross income is 37 per cent. An associated issue will be a more comprehensive indemnification agreement of the selling shareholders in order to reimburse the buyer for all losses incurred by the buyer as a result of a breach of a seller`s warranty as to the condition or condition of the target company and its business. According to the code, a company with more than one class of shares is not considered a « small business ». [iv] When Corp`s board of directors become aware of this issue, it amended Corp`s articles prior to the transaction to convert Class A and Class B shares into a single class of shares with identical distribution and liquidation rights, in order to correct the inefficiency of Corp`s corporate choice. The share purchaser also loses the possibility, in general, to increase the base of the assets acquired by Company S to their fair value – the cost of acquiring the assets[xvii] – and, where appropriate, to spend, amortize or amortize these costs and thus recover their investment (i.e. the purchase price) more quickly than in the case of a share purchase. [xviii] Entity S itself is not subject to federal income tax. [xi] The Board of Directors then amended Corp`s articles of association a second time in order to modify the rights to liquidate the company`s shares. As a result of this amendment, Class A and B shares were allowed to obtain equal shares in all assets of Corp in liquidation until a certain amount had been paid into each share. Once this amount was reached in the liquidation proceeds per share, Class B shares were allowed to receive the balance of the company`s remaining assets.