| ID | Status | Date | Public/Private | Industry | AHACPA Contact |
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| #7018 | Closed | public | Multifamily | Les Sparks |
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I have a client that has an agreement with an unrelated party to purchase a 50% stake in the company. They have signed an agreement such that the party has given them a note receivable for $XXXX. They have recorded the other half of the transaction as “Stock Subscription” in the Equity section of the balance sheet. Would the note receivable be considered a related party asset and thus unacceptable assets in computing adjusted net worth? |
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From Les Sparks: In general HUD does not allow A/R from related parties to be included as equity and as such considers them as unacceptable assets. However, based on your description of the the intent to sell a 50% stake in the client to a previously unrelated party I believe it is possible to consider the asset as an acceptable asset. Prior to the transaction, the purchaser was not a related party in any way. The proscription against related party receivables to me implies that they were related parties prior to the transaction, not as a result of the transaction. I understand that this is bit unusual. Ultimately, HUD May not agree, but by that time the receivable may be paid. Remember, the HUD disallowed related party A/R not subscriptions receivable. However, by nature of the transaction the buyer becomes a relate party. I do not believe that FHA intended this situation. NEvertheless, HUD will tell us. Hopefully the amount will be paid quickly and the argument goes away. I would be sure to document clearly that there was not relation prior to this time. Further, the buyer has both the opportunity and capability to perform under the purchase contract. |