Death of Shareholder

[Snaggletooth]

Maybe some quick advice before reading the Small Business Quickfinder from a year ago.

The owner of a Subchapter S corporation since 1980, and a long-time customer and friend since our teen years, lost his life in a traffic accident not far from my house last night. There are only 750 shares of stock, and he owned them all. I'm assuming now that they are owned by his estate, as the corporation will continue to operate profitably by friends and family until it either a)is closed with the Secretary of State, or b)has its shares passed to children/other family members.

So for some indeterminable length of time the corporation's 750 shares are owned by his Estate. My question: Can an S corporation be owned by an estate?

If so, we only have a matter of prorating the income, and there will be 2 K-1s - one for the owner until Aug 21st, and another from Aug 22nd through Dec 31.

If not, does the corporation (which was founded as a "perpetual" entity) immediately become a C corporation, such that both 1120S and 1120 returns are due for this year?

Thanks in advance..Ron J.

[S T]

Some Info

Snags, Sorry to hear about the loss of your friend!

I found these articles, which might help, see under "Death of Shareholder" http://library.findlaw.com/1999/Jun/1/130959.html http://www.nysscpa.org/cpajournal/1995/AUG95/ET0995.htm

Maybe in the S Corp Shareholders Agreement there was a Clause about "Transfer on Death"


Sandy

[Bees Knees]

Snag

Sorry about your loss.

To answer the question directly, estates are eligible shareholders. His estate can own the shares of stock until they are transferred to the beneficiaries without having to terminate the S election.