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My company is 6 months old and an S Corp. How do I bring on 2 additional shareholders to be directors/officers?
Greenville, SC
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Posted about 1 month ago in Corporate / Incorporation
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Less than $5k revenue to company thus far, but about $16k in business expense on my part. How do I bring these 2 people into the business? If they are shareholders and providing work for the company are they automatically employees of the company? Also, if I give them their shares now, will they be entitled to a representative portion of the s corp loss for tax purposes? Obviously, I would like to retain that for myself, since it was my investment.
I know I need legal representation for this, but is there a resource that you recommend to educate me on how s corps work and function and the IRS/employee ramifications of adding shareholders? I want to be at least knowledgeable about things when I go into talk to atty - I don't want to have to pay him to provide me basics. :) Thanks Answers (1)
Steve Fromm
This attorney is licensed in Pennsylvania.
Posted about 1 month ago.
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There is a lot to your questions here and you need to hire competent tax counsel. A couple of points:
1. The losses to date should be yours by making the proper tax elections when new shareholders buy in to the corporation. 2. How are you going to determine a proper buy in for the shareholders or stated differently, what is the value of the business? 3. Always, and I mean always, be reluctant to give up control of your business. Do you have to give them shares to have them work for you? If so, you must keep over 50% of the shares. Do not make a mistake on this as you will live to regret it. 4. If they provide services and are shareholders they must be paid "reasonable" compensation. This must be discussed with your tax attorney. Hope this helps. LEGAL DISCLAIMER Mr. Fromm is licensed to practice law in PA. The response herein is not legal advice and does not create an attorney/ client relationship. The response is in the form of legal education and is intended to provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received. |
