Linda is a doctor that has worked for a wellrespected clinic for the last two ye

Question

Linda is a doctor that has worked for a wellrespected clinic for the last two years. The clinic is a professional service corporation operated as a C corporation. She has now been offered an equal ownership interest in the C corporation and a limited liability company that owns the office real estate in which the clinic is operated. - The buyin price for the privilege of becoming an owner "blew her away." The C corporation buyin is $300,000, of which $200,000 is attributable to untaxed account receivables. - The LLC buyin, set at $350,000, is based on a current appraisal. Although the existing three owners financed the construction of the entire facility with longterm debt four years ago, the current appraisal now shows that the equity in the facility (the excess of the fair market value over the mortgage debt) has appreciated to $1.4 million.   Linda needs some help. What options would you suggest?

Explanation / Answer

C corporation buyin = $300,000

LLC buyin = $350,000

Total buyin value= $300,000+ $350,000= $650,000

Linda can raise finance to raise cash for buy in,

1) Purchase the interest with cash if available

2) Raise mortgage debt with ownership interest as collateral and then purchase the ownership interest in the facilities.

3) Raise mortgage debt with her other assets as collateral and then purchase the ownership interest in the facilities.

4)If possible she can have ESOPs issued to her that can entitle her to equal ownership of C Corporation, if x is the $ amount she requires for equal ownership of C then (x+1400000)/4=x=> 3x=1400000=>x=$466666.667, So 466666.667 amount of ESOPs should be issued to her to entitle her to equal ownership of C, the rest of buy in for LLC can be done by raising a debt.

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