Help with Shareholders on an S-Corp

[ChaosJester]

I am just about to file for my corporation to become an S-Corp and I plan on releases a few shares to friends and family. If my company makes profit am I required to pay them anything? I do not plan on registering the stock as I am very small time. Thank you!

ChaosJester
www.ChaosJester.com

[Peter T Davis]

Hi ChaosJester, and welcome to the Small Business Forum. It seems to me that you should register the stock, do everything by the book. However, I'm unqualified to make that determination for you. I highly recommend you get a qualified CPA and/or attorney to advise you on this matter. Please take it seriously, even though you are small. Even small things, if not done correctly, can become big things.

[eightmanagement]

Ok, first of all, S-corps are a lot of work to set up. But, to answer your question, you are not required to pay out divedends in common stock, but they may withdraw their basis at anytime. You do not need to register your stock, that's only for publicly traded stock.

I can explain more, but I need to know more about your business. Also, I would be happy to handle your tax return and the S-corp filing if you would like.

Make sure these are friends that you can trust and will be around for a while. You don't want these shares all over the world.

[jonneebee]

I'm no accountant so I don't have great advice. I can tell you, however, that I am an s-corp and I gave some stock to a friend which I regret doing now. So make sure those you give stock to will still deserve it, even in times of war.

Welcome to SBF,

[eightmanagement]

OOo, see that's what I mean. S-corps are not for the faint of heart.

[philipwhite]

I wouldnt say that its too difficult to set up. One of the guys I work with does this all of the time. He basically has templates for all of the different kinds of businesses you can set up and just has to put in the specific data. Its pretty slick.

As for paying dividends and so on, you don't have to pay. You can reinvest earnings in the business. Look at microsoft, they have yet to pay a dividend. Make sure the person (cpa) who is helping you prepare your documents writes out exactly what you want on your stock share agreements. You can even include buyback clauses incase you want to close out or get rid of an investor.

[eightmanagement]

You cannot just file for an S-corp with "a template". While the articles of incorporation and state application may be available in that form, the important part is the detail in your articles. If someone presents you with an S-corp template, run. LLC, yes, S-corp no. You need to put all of your stock and ownership stipulations into your articles of incorporation, which should be done by some with experience in filing such documents.

Also, do not assume that every CPA knows more than a non-CPA. While I am working on obtaining my CPA license, I have found that I have more accounting and business knowledge than many existing CPA's. I have a few colleagues who are in the same category.

[philipwhite]

Your assuming a bit too much. I'm not sure if you do this sort of thing yourself but the people I work with that do this are hardly amature. They have years of experience setting up companies. Its really not that hard to do.

[eightmanagement]

Philip I'm sure that your co-workers are qualified to file for S-corps, I just don't think that a template is the way to go. Especially when a business owner is dealing with friends and associates as stockholders. That requires a great deal of detail. I'm sure your co-workers are not amateurs, as I am not.

I did take offense to your insinuation that someone should seek out a CPA for this type of filing, when a non-CPA professional can be just as knowledgeable.

Good luck ChaosJester, but enter the world of stock distribution cautiously.

[eightmanagement]

ChaosJester,

How do you make money on your site currently (I see that your store opens up next week)? Your site is cool, I like the rant. It reminds me of this underground coffee shop that everyone used to meet at, when I was in college,to read poetry, open mic music and just be unique. Keep it up.