Question

Golden Crowrie, Inc. has operated successfully as an S corporation for eight years in Greer, South Carolina. In July 2010, the company has 100 shareholders. Morrie Shelby is considering obtaining a divorce and both Morrie and his wife Kristy own shares in the corporation.

Morrie discusses the situation with the board of directors who offer several suggestions:

• Morrie should postpone the divorce until 2011 while the company tries to purchase all of a shareholder who owns a small ownership interest.
• Morrie and Kristy should remain married indefinitely for the good of the S election.
• Two of the unmarried shareholders will be encouraged to marry for the “benefit” of the company.
• The company will continue to list Morrie and Kristy as married on Form 1120S after they are divorced.
• The S election saves the group about $320,000 each year.

How would you counsel Morrie to respond to the board’s proposals?

Answer 1

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AS FOR GIVEN DATA..

Golden Crowrie, Inc. has operated successfully as an S corporation for eight years in Greer, South Carolina. In July 2010, the company has 100 shareholders. Morrie Shelby is considering obtaining a divorce and both Morrie and his wife Kristy own shares in the corporation.

Morrie discusses the situation with the board of directors who offer several suggestions:

• Morrie should postpone the divorce until 2011 while the company tries to purchase all of a shareholder who owns a small ownership interest.
• Morrie and Kristy should remain married indefinitely for the good of the S election.
• Two of the unmarried shareholders will be encouraged to marry for the “benefit” of the company.
• The company will continue to list Morrie and Kristy as married on Form 1120S after they are divorced.
• The S election saves the group about $320,000 each year.

How would you counsel Morrie to respond to the board’s proposals?

ANSWER:

From the case it is understood three situations

1. Morrie should postpone the divorce till 2011 because company may purchase minor shares

2. Morrie and Kristy should remain married for S election

3. The company will continue to list Morrie and Kristy as married on form 1120S after they are diversed to save S election money

Point no 3 is not acceptable because it is violation of law.

Point no 2 is they have the personal matter whether they will continue or divorsed.

I only can support Morrie on the proposal no 1 , to continue upto 2011 and the minority interest will be purchased. Morrie should have also help to Board how the minority shares will be purchased then may proceed for diverse. Is the board request and as per interest of S corporation Morrie can wait upto 2011.

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