S-corp stock
dontworryaboutit
Member Posts: 20
Does an S-corp require stock for its shareholder or similiar capital set aside for this purpose? Or is simple ownership % acceptable? I am a sole owner of an s-corp and put "100%" for "numbers of shares or percentage of ownership" on my F2553.
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dontworryaboutit,
Going to depend on how you are organized under state law. If you incorporated, then you would expect to have stock issued. It all technical law stuff and corporate governance, but it's how it works. If you incorporated in a state then you have created a separate legal entity from it's owner. This entity agrees to issue stock to you in exchange for money. When you filed papers your declared the par value and the number of shares authorized to be issued. Most of the time par value is a penny a share. So for example, let's say the S-Corp is authorized to issue 100,00 shares for .01 par value. It issues 10,000 shares to you in exchange for $5000 from you. Stock on the balance sheet is stated at par value so that would be 10,000 x .01 or $100. But you paid 5000. The difference goes to paid in capital. You would create a journal entry or split the deposit (if on transaction page) Debit cash and credit stock 100 and credit paid in capital 4900. Since you own all of the outstanding shares you are also the 100% owner. Technically the corporation is supposed to have minutes of the board meeting (with yourself) and document all this. Sounds silly I know for small businesses but state law treats all corporations the same.
If you formed a LLC and elected to be treated as an S-Corp then none of the above would apply because an LLC does not have the authority to issue stock. Your would just maintain an Owner Equity account.
Hope that helps. Let me know if you are looking for a CPA, I work with clients across the US
Hey MikeG,
I think we dove off the deep end on this one. I am an LLC, not a corporation. I elected to be taxed as an S-Corp which is tax election, not a legal entity (from my understanding) and as like you mention in your response.
I also can be called a managing member and have ownership share percentage instead of "shares", from my understanding.
dontworryaboutit,
No problem. Wasn't sure whether you incorporated and elected S or formed an LLC and elected S.