Our Practice

Structural Changes & Subchapter S Elections

Financial institutions periodically need to evaluate their corporate structure, sometimes in connection with the evaluation of a new product or in connection with an acquisition or an offering.

We have formed many bank and financial holding companies where the need is apparent. However, we have observed many banks forming holding companies without a clear notion of how they plan to use the holding company. We counsel our clients not to form holding companies unless the reasons for doing so are compelling. In some instances, we have liquidated holding companies for banks that do not have a need for one.

In evaluating new products, financial institutions need to decide whether to offer the product through the financial institution itself, or through an operating or financial subsidiary of the financial institution, or through its holding company or subsidiary of the holding company. We have extensive experience in counseling financial institutions on how to structure the offering of new products and services.

With the enactment of a federal law in 1996 allowing banks to elect to be taxed under Subchapter S of the Internal Revenue Code, there have been more than 2,000 banks that have elected such classification. We played a significant role in the enactment of the legislation through our representation of a bank client desirous of becoming an S corporation, and since enactment, we have represented more than 200 banks in electing S corp. status. In some cases, we assisted our bank clients to use reverse stock splits and cash out mergers to reduce the number of stockholders to less than 100 and to otherwise qualify the shareholder group for an election under Subchapter S, as required by law.

A number of community banks or their holding companies have decided to deregister from SEC registration by reducing the number of shareholders below 500 (or 300, depending on which securities laws or regulations apply to the specific situation). The decision to "going private" involves an evaluation of the advantages and disadvantages of remaining of public company. Compliance with the Sarbanes-Oxley Act, particularly Section 404, which requires internal control attestations, has been quite costly, particularly for smaller community banks. We have successfully represented a significant number of banks through the deregistration process.