Discussion:S Corp stock

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Discussion Forum Index --> Tax Questions --> S Corp stock

JOscar (talk|edits) said:

9 January 2007
I have a S Corp with two unrelated stockholders: "A" ownes 750 shares issued at $1 each and does not work in business; "B" owns 250 shares issued at $1 each and devotes 100% of time to business. "A" receives a "management fee" for signing checks and discussing operations weekly with "B". "B" is salaried. "A" originally pledged personal assets to obtain loans for some equipment so the company could get started.

It was understood from the beginning that when certain events occur, they would both own 50% of the stock, but it was never discussed how this would occur. The business is becoming successful now, after about 5 years. What is the best way to make the stock equal? "A" sell "B" 250 shares at $1 each? Corporation issue "B" 500 shares at $1 each? Any other thoughts? There is not a lot of intrinsic value in the corporation, but the company might be sold for a couple hundred thousand dollars if "B" continued to run it.

KENDRICK (talk|edits) said:

9 January 2007
If there is a stock sale between shareholders, you may have to sell at FMV, I would think. Have you considered having the corporation redeem 500 shares of A's stock, so both A and B would then own 250 shares each?

JR1 (talk|edits) said:

January 9, 2007
Getting a reasonable and fair value is key. If A sells shares, it increases basis for B, which is probably what you're after, best case.

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