Ernie K 1 year, 10 months ago
How to correctly unwind a ROBS funded business
I really appreciate the great information provided on your web site. I hope you can provide some help with my situation. Many ROBS columns will explain how to fund a business correctly but very few will provide exit advice.
I funded my C-corp business 8 years ago using qualified retirement funds with the help of a ROBS expert, and I am now planning to retire. Essentially in 2009 I rolled my IRA funds into a retirement plan (approved by the IRS) provided by the ROBS expert. Our retirement plan then purchased shares in our newly created C-Corp to provide startup and operating capital. Shortly after our startup, we contracted with an investment broker to provide and manage a 401k plan with about 26 mutual fund offerings. Throughout the past eight years we carefully followed all ERISA rules to notify and educate our people as they reached plan eligibility including providing written investment directions which communicated the option of investing in Qualified Employer Securities in addition to the mutual fund offerings provided by the brokerage firm. None of our plan participants opted to purchase QES shares, so my retirement plan is still the sole shareholder of record.
I am ready to exit the business and after searching for a possible party to buy the business outright, I have only received interest in the individual business assets. These assets include (1) the business book (client contracts) which I hope to sell through a Sales/Referral Agreement, (2) office furniture and equipment and (3) the legal entity (C-Corp) which is currently holds a valuable license issued by the state. The first two sales steps will generate revenue for the C-Corp which will go into the company’s bank account. How exactly would I roll the cash from the C-Corp’s checking account back to my IRA. Do I need to roll it into my broker managed 401k plan first and then roll to my IRA? Or should the directors of the C-Corp redeem the shares held by my retirement account and then have the plan trustees process the rollover transaction?
I hope to sell the legal entity (our C-Corp) to a buyer who wants to benefit only from our state license since it was issued to the company. it seems clear to me that I must complete all other asset sales and satisfy all liabilities first to be able to return all resulting funds to my retirement plan. How would I then handle the proceeds from the final sale of the legal entity?
Hope you can provide some thoughts to help.1 Reply
Jeff WhiteModerator1 year, 10 months ago
Great question! You may need to complete all transactions simultaneously, or have the new owner of the C Corp pay you more but then they would receive the benefit of the other asset sales. It really depends on the fair market value of the ownership stake your retirement account owns. If you sell those assets first and then have a huge increase in business value then the retirement plan may not get their FML out of the business when you sell the legal entity.
To answer your main question, yes you will buy out the ownership of the 401k plan first. So the funds will be paid to the 401k plan in exchange for their ownership. That 401k plan can then be rolled into an IRA, or another other tax deferred retirement account of your choosing. It could be more complicated if you have any employees that have invested in your business through the 401k plan, however. We recommend working through this with your ROBS provider, which should be able to help you close down your business as it pertains to your unique situation.