S-Corp s/h buyout

[jwk1985]

Hello,

I need some assistance with a a tax issue. I am working with 2 shareholders of an S-Corp. One shareholder is buying the shares of the other for a certain sum. The transaction is as of 12/31/2011. My question is, how do I account for the transactions involved in this sale - stock, assets, retained earnings for the remaining shareholder and for the shareholder who sold his 50% ownership.

I would appreciate your help in getting this sorted out.

JWK1985

[ChEAr$]

Hello,

I need some assistance with a a tax issue. I am working with 2 shareholders of an S-Corp. One shareholder is buying the shares of the other for a certain sum. The transaction is as of 12/31/2011. My question is, how do I account for the transactions involved in this sale - stock, assets, retained earnings for the remaining shareholder and for the shareholder who sold his 50% ownership.

I would appreciate your help in getting this sorted out.

JWK1985

I'm not sure what you mean, "account for it."

This transaction has nothing to do with the corporate balance sheet or 1120S. the seller's share of 2011 profits are still reported via K1 as you know, but effective 1/1/2012 his name is history.

He pays the other shareholder dollars for the stock and nothing is recorded on corporate accounting books. Of course the transfer of the shares IS recorded on the corporate records by the secretary of the corporation.

[jwk1985]

S-corp buy out

ChEAr$, thanks for your response.

There are actually 2 S-Corps and the two shareholders are the principals. The remaining shareholder purchased the shares for each of the companies from the departing shareholder. The remaining shareholder is paying off the debt that was left. (Not a pretty picture). It seems that since the departing shareholder would have 50% liability since he had a 50% share in the company.

What other information can I give you to clear this up.

jwk1985

[ChEAr$]

ChEAr$, thanks for your response.

There are actually 2 S-Corps and the two shareholders are the principals. The remaining shareholder purchased the shares for each of the companies from the departing shareholder. The remaining shareholder is paying off the debt that was left. (Not a pretty picture). It seems that since the departing shareholder would have 50% liability since he had a 50% share in the company.

What other information can I give you to clear this up.

jwk1985

The transaction involving Joe buying Ed's shares is a side issue and has no bearing on the corporate finances. Common stock remains valued as such on the books. It's not the corporation which bought the shares.

Also, shareholders do not have liability for corporate debts by the way unless one has also guaranteed corporate debt.
Ed gets his money from Joe and walks away scot free.