But, it is also unwise to neglect to consider the tax impact of your decision.For example, if you run a business that engages in operations that are considered "risky" or subject to frequent lawsuits, your legal advisers are likely to urge you to incorporate or form an LLC.
It is unwise to select a business structure based solely upon tax considerations.
Shareholders might prefer to sell their stock, but buyers might be more interested in the assets.
Sales of stocks produce either a capital loss or gain.
Although a corporation is allowed to recognize tax losses when depreciated property is distributed to shareholders in complete liquidation of the corporation (Sec. At the shareholder level the stock redemption or non-cash distribution can result in a variety of tax consequences: taxable dividends or capital gain taxes. Lets say XYZ Inc (S Corp) has three unrelated shareholders. One in NJ with adjusted cost basis of 5K and one in NY with adjusted cost basis of 7K.
Each shareholder owns 100 shares of XYZ Inc stock @ 0 per share. After 5 years, one of the shareholders wants to leave the corporation and requests the corporation to buy back his 100 shares for 12K.