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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 10164
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am a bookkeeper for a very small S Corporation. there are

Customer Question

I am a bookkeeper for a very small S Corporation. there are two shareholders one of them is buying out the other. Can you help I must have expert advice
Submitted: 1 year ago.
Category: Finance
Expert:  Lane replied 1 year ago.

Hi,

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Typically this is done by having the S-Corp buy out the shareholder

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Ideally there's a shareholder agreement in place.

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When I do this for my clients the agreement contains a buyout clause (which has the requirement that the shareholder sell their shares back to the company). Protects the tax status for one thing

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It will also define what the price per share would be in the case of a buyout.... Or sometimes a corporation will negotiate a price. Either way, the S-Corp then exchanges cash for the shareholder’s stock.

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So what you end up with here is treasury stock. ... recorded solely on the S Corporation’s balance sheet. The transaction will result in the cash account being decreased, or debited, by the amount of the repurchase price. ... Then to balance the cash account deduction, the S Corp creates a “treasury stock” account in the balance sheet (equity section). The S Corporation will then credits that account by the amount of the stock reacquisition price.

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Once done, the S Corp has to issue the departing shareholder his last K-1 and submit a copy of that form to the IRS. You'll mark the box for Final K-1. The K-1 should cover the shareholder’s portion of the business’s financial activity for the period, starting at the beginning of the business’s tax year to the day he sold his shares.

Expert:  Lane replied 1 year ago.

Just checking back in

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Did you see my answer?

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Lane