Section 24 Sale of Stock Combined With Redemption of Stock by Selling Corporation

• Library: Bus Trans 2005

The parties may find it mutually beneficial for the selling shareholders to sell a portion of their stock to the purchasers with the target corporation redeeming the remainder of the selling shareholders’ stock before the purchase. For example, the target corporation may have assets that the buyer does not wish to purchase or may have excess cash on hand. These items could be utilized to redeem a portion of the selling shareholders’ stock and thereby reduce the price to the purchaser. This part-sale, part-redemption transaction is frequently called a “bootstrap acquisition.”

Zenz v. Quinlivan, 213 F.2d 914 (6^th Cir. 1954), is frequently cited as approving a bootstrap acquisition because the IRS...