Legal Question in Business Law in California

Can I sell my company car to a family member at a reduced price? I paid $37,000 for this car just over 4 years ago, and it is not covered by the warranty anymore. The trade-in blue book value is around $16,000 but has few dents in the body, but no major accidents. What is the law in this regard.


Asked on 4/13/11, 1:28 pm

2 Answers from Attorneys

Bryan Whipple Bryan R. R. Whipple, Attorney at Law

First, I will start with an old adage: "He who sells what isn't his'n, must buy it back or go to prison." I therefore must assume you own the company that owns the car, and thus have indirect ownership.

If indeed you own 100% of the company, you can cause the company to sell the car below fair market value, but you cannot misrepresent the transaction on your tax returns, corporate or personal. There is a gift element in any non-arm's-length transaction where property sells below fair market value, or is given away; or perhaps if the recipient is an employee, it represents additional compensation.

Further, if the company is insolvent or illiquid, disposing of assets to family members at below fair market value could violate laws against distributions to insiders or be a fraud on the company's creditors.

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Answered on 4/13/11, 2:45 pm
Kevin B. Murphy Franchise Foundations, APC

As a Franchise Attorney I can only add the following. It all comes down to who has title to the car. If you do (because you paid $37k for it) then you can sell to whoever you at whatever price you want. If the title is in the company's name, then things get more complicated, but not insoluble. Consult with a good business or franchise attorney in your area for specific advice.

Mr. Franchise - Kevin B. Murphy, B.S., M.B.A., J.D.

Franchise Foundations, a Professional Corporation

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Answered on 4/13/11, 6:24 pm


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