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Experience:  10 years, Corp litigation, Of Counsel to several global and nationwide corporation
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Hi. I am a minority shareholder in a Sub S Corp. I have 25%;

Customer Question

Hi. I am a minority shareholder in a Sub S Corp. I have 25%; the majority owner 75%. After 14 years (when debt was satisfied and we turned a profit) he decided to replace me with his sons and to this date has not done distributions. They will not show me financials or give me other data - but if we showed 140k in profit and he didn't distribute it what happens to it? Does it become retained earnings and if so do I have claim to it at anytime or can he pull it out and use it at any time? Thx
Submitted: 3 years ago.
Category: Business Law
Expert:  wallstreetesq. replied 3 years ago.
Hello I am a licensed attorney here to help you with your question, please review my response and do not hesitate to ask for clarificati on.

As a shareholder you are entitled to 25% of the value of the corporation, the earnings would be part of it, however if the profit is not given to you, it is not income. What you need to do is sue the majority shareholder for your share of the profit and force him to buy you out of your 25% share.
wallstreetesq., Attorney
Category: Business Law
Satisfied Customers: 16317
Experience: 10 years, Corp litigation, Of Counsel to several global and nationwide corporation
wallstreetesq. and other Business Law Specialists are ready to help you
Customer: replied 3 years ago.

I'm sorry - to clarify - does undistributed profit HAVE to go into retained earnings? and once it does can he pull it back out?

 

(FYI - I HAVE paid taxes on it every year - I'm told it's 'phantom income' and there is nothing I can sue him for. He doesn't have to buy my stock, though he did offer me 1/3 the value paid over time as an independent contractor adding the self employment tax for me to pay)

 

Anyway ... again, does undistributed profit HAVE to go into retained earnings? and once it does can he pull it back out? Thx JD

Expert:  wallstreetesq. replied 3 years ago.
If the profit was not distributed it will have to be considered retained earnings, the only way it can be pull out is to pay a debt or expense.


http://www.investopedia.com/terms/r/retainedearnings.asp
The percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders' equity on the balance sheet.

The formula calculates retained earnings by adding net income to (or subtracting any net losses from) beginning retained earnings and subtracting any dividends paid to shareholders:

Retained Earnings

Also known as the "retention ratio" or "retained surplus".

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