Bedtime Story

[erchess]

I am working with a very dysfunctional S Corp. The S Corp is dysfunctional because its owners are dysfunctional. The characters in our story are Papa, Mama, their Sons One and Two, and Papa's friend Gotbucks. Papa, Mama, and One and Two live together in NC which is not a community property state, and Gotbucks lives in PA. The S Corp makes its money in NC. Papa and Gotbucks are the two decision makers in the company but Papa is officially an unpaid consultant because he is on Disability and does not want any other money in his name. Therefore the owners of the S Corp were Gotbucks, Mama, One, and Two. Since Mama, One, and Two always vote their shares as Papa suggestes, Gotbucks has no real power. He contributed most of the capital and he is due to be paid back with interest by Papa and Mama even if the S Corp never turns a profit.

Now Papa drove his vehicle quite a bit on company business. There was no plan of any kind and no reimbursement. May he deduct mileage that he drove alone or with One and Two and contractors? Does it matter if Mama came along? (Sometimes she did and sometimes she did not.)

It also turns out that Gotbucks is unhappy with the continued money losses of the company. He wants to change his status from owner to holder of debt and he wants repayments to begin sooner than called for in his contract with the firm. Papa has retained a lawyer but the lawyer has not heard from Gotbucks or his lawyer. But out of this arise two more questions.

Gotbucks is not as far as I know asking for money in exchange for his shares of the company. Why would the others not benefit from doing what he wants?

Third question is that since the owners have elected to fight, how do I operate?

[Bees Knees]

If Gotbucks contributed most of the capital, he cannot be paid back with interest. Capital stays in the corporation. A debt is something that gets paid back. If he has a contract that says he gets his capital back at any time prior to liquidation of the corporation, they can’t be an S Corporation.

Tell them the minute they pull something like that, they go back to being a C corporation.