Sub S Change of ownership

[lordparrotman]

Two senarios:

#1 A Sub S corp buys back the stock of one of its shareholders during the year. There is only one other shareholder in the corp.
What happens to the loan from the shareholder to the corp. who sold his shares?
How should the profit be allocated to each shareholder and is there a choice of how to do it? (i.e. profit calculated to date of sale and then allocated to both parties, then profit for remainder of year allocated to sole shareholder?)

#2 A Sub S corp sells 10% of its shares to a new shareholder. There are 2 other shareholders who had 50% each before the sale. How is the profit allocated in this case? Do dates matter in this situation?

[ChEAr$]

secret of success

Two senarios:

#1 A Sub S corp buys back the stock of one of its shareholders during the year. There is only one other shareholder in the corp.
What happens to the loan from the shareholder to the corp. who sold his shares?
How should the profit be allocated to each shareholder and is there a choice of how to do it? (i.e. profit calculated to date of sale and then allocated to both parties, then profit for remainder of year allocated to sole shareholder?)

#2 A Sub S corp sells 10% of its shares to a new shareholder. There are 2 other shareholders who had 50% each before the sale. How is the profit allocated in this case? Do dates matter in this situation?

in accounting, as I used to tell my students, is "Allocate;allocate; and pro rate."

No matter who shareholders are now or were in the past, a loan is a loan and is still
outstanding, before and after, and has to be paid; eventually. Best of course to make
sure at this juncture the loan is formalized and either paid off in full or installment payments provided for with appropriate interest.

You may close the books and calulate profit or allocate at years end on the basis
of number of days for each shareholder. for example if one of two shareholders (each
50%) exits on June 30th, there are 365 plus 181 days = 546 shareholder days.
one partner gets 365/546 of the profit and the exiting shareholder, the balance.

Use same math in situation #2.