How to Transfer Ownership of an Incorporated Business

The process varies depending on whether you intend to transfer overall ownership or quantities of corporate shares.3 min read

Wondering how to transfer ownership of an incorporated business? The process varies depending on whether you intend to transfer overall ownership or quantities of corporate shares.

Corporate business owners usually one of two types of corporations: C corporations or S corporations. The former pays both state and federal taxes, while the latter is considered a partnership by the IRS and is usually exempt from some taxes. It's important to know which type of corporation your business is, however the process to transfer ownership applies to both.

How to Transfer Ownership of an Incorporated Business

The following steps outline the process of transferring ownership of an incorporated business:

  1. Contact the corporation's board of directors or shareholders. They will need to approve any sales or transactions before the transference can take place. Shares are freely transferable.
  2. Consult with an attorney in regards to selling your assets and stock. Corporate shareholders will often have stake in stock, which means they will be liable for taxes due on cash or property transferred to them.
  3. Hire an accountant or tax adviser to examine your situation and provide information regarding any tax implications. You'll want to know what amount you'll owe for taxes after the sale, if any.
  4. With your attorney, come up with a plan of liquidation in order to maximize the amount you'll make from selling any property.
  5. Find a buyer.
  6. Decide whether the sale will be paid in installments or in a lump sum.

How to Transfer Ownership of Stock Within an Incorporated Business

In a corporation, owning stock means owning a share of the company. One stock is essentially one piece of ownership. Different classes of stock have different rights, including voting rights. Most owners will want their stock to be the type with voting rights, as these rights enable them to control the business through ownership. If you transfer stock ownership to another individual, you transfer ownership in the company. To transfer ownership of stock, follow these steps:

  1. Calculate the number of stocks you own and the current number of outstanding stock. As an example, Mr. Smith owns 100 shares of stock in National Firm. National Firm has 1,000 shares of stock outstanding.
  2. Decide the amount of ownership you wish to transfer. Say Mr. Smith owns 10 percent of National Firm. He then chooses to transfer half of his ownership to Ms. Taylor.
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  3. Calculate how much stock you'll need to transfer to achieve the ownership percentage you wish to transfer. If Mr. Smith wants to transfer 5 percent ownership in the corporation, or half of his current ownership, it will amount to 50 shares.
  4. Determine the compensation (payment) you will obtain for the transfer of stock. In our example, Mr. Smith will receive $20,000 from Ms. Taylor for the transference of 50 shares.
  5. Develop a share transfer contract. Be sure to write it out in detail to eliminate any potential legal issues. In the contract, include the number of stocks offered, the consideration for such an amount, the full names of all parties, and any other relevant information regarding the transfer. If you run into difficulties drafting the contract, find a sample contract. Revise the wording and eliminate irrelevant clauses so that the contract is specific to your exchange.

Advantages of Incorporation

If you are conducting business as a partnership or sole proprietor, your business is not incorporated. This means the business will only exist as long as the partners or the sole proprietor are actively conducting business. This type of business dissolves upon the death or bankruptcy of an owner. However, if your business incorporates, it can continue to exist after such an event occurs. A corporation exists perpetually, as it's considered a legal "person" and most jurisdictions allow LLC's to opt for perpetual duration.

If you intend to expand your business and someday sell it in its entirely or retain partial ownership and sell a part of it, you'll want to consider the possibility of transfer before you incorporate. If you want to someday hand over your business to a family member, transferability will be an important consideration. Corporations are the easiest kind of incorporated structure to transfer.

If you need help understanding how to transfer ownership of an incorporated business, you can post your legal need on Legal Marketplace's marketplace.

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