Client used legal zoom to setup a s-corporation. They suggested he show 6,000 shares purchased for 5,000 total purchase price and himself as the only owner. He did this real fast just to get the s-corp setup. He explained that he owns 51% of the s-corp and his partner owns 49%. He shows himself as the President his partner as the Chief Financial Officer and his wife as the Secretary. He never invested the $5,000 in the business and his partner never invested anything. In 2018 his partner loaned the company approx 90,000 and the s-corp has paid his partner back most of the money in 2019. There was nothing in writing for this loan. Neither partner has invested any money into the corporation. Then my client withdrew part of the amount loaned from his partner as a distribution in 2018.
How do we fix this problem? Can we go back to legal zoom and explain it was an error and he misunderstood the setup process so we can reduce the investment to a much smaller amount and add his partner? And since there is no basis but a loss in 2018 no one can claim the losses because no one has made an investment in the company. Is this even possible to go back and fix this mess. If not any suggestions on what to do? Everything they did was a verbal agreement that he would own 51% and his partner 49%.
How do we fix this problem? Can we go back to legal zoom and explain it was an error and he misunderstood the setup process so we can reduce the investment to a much smaller amount and add his partner? And since there is no basis but a loss in 2018 no one can claim the losses because no one has made an investment in the company. Is this even possible to go back and fix this mess. If not any suggestions on what to do? Everything they did was a verbal agreement that he would own 51% and his partner 49%.
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