Academic journal article ABA Banking Journal

Pioneers Get No Argument from Shareholders

Academic journal article ABA Banking Journal

Pioneers Get No Argument from Shareholders

Article excerpt

Oualifying banks have until March 15 to notify the Internal Revenue Service of their intent to convert to Subchapter S form. In the survey report beginning on page 18, a small number of banks told us they definitely plan to convert this year, while some bankers were still considering the move. For a detailed look at Subchapter S's advantages for certain banks, see Community Banking, ABA B J, December 1996, p. 18. We recently talked to a few "early implementers."

Understanding the details about conversion of a community bank to Subchapter S form, rather than the more typical "C" corporation, will likely require the advice of experts. But explaining the bottom line of the new structure to shareholders--avoidance of double taxation--goes right to the wallet, early adopters among community bankers find.

When interviewed in early February, Alice M. Dittman, president and CEO, Cornhusker Bank, Lincoln, Neb., was just sending off the bank's forms. She had earlier held an informational meeting for her 40 shareholders where the bank's CPA explained tire new law and its ramifications. A straw poll indicated strong interest. The later, formal vote for conversion was unanimous, as it must be under federal law.

"It's an exciting challenge," says Dittman. "I'm positive this is the right decision for us at this time."

She notes that the law's 75-shareholder limit cuts off some potential avenues for capital growth, and the law prohibits multiple classes of stock, which prevents an "S" bank from issuing preferred shares. "But our philosophy has been to grow through retained earnings," anyway, says Dittman. …

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