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bkb1956
bkb1956, Finance Enthusiast
Category: Finance
Satisfied Customers: 2856
Experience:  IRS Enrolled Agent, 18+ years of experience in tax preparation with associated finance experience.
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Bob has a friend who's willing to help him out and invest in

Customer Question

Bob has a friend who's willing to help him out and invest in a company that Bob will start. Bob is putting in sweat. He'd prefer that friend doesn't have rights, and has the lowest percentage s-allocation as legally possible. How does it work?
Submitted: 20 days ago.
Category: Finance
Expert:  bkb1956 replied 20 days ago.

Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

I'm not understanding why Bob's friend would agree (since he is investing in the company), but

A company that desires the flow-through taxation benefits of an S corporation is not required to issue identical stock to all of its owners. The company can issue voting common stock and non-voting stock as long as the stock has identical rights to distributions and liquidation proceeds.

The stock percentage can be decided between Bob and his friend.

The following links contain excellent information you will find helpful:

http://www.protoraelaw.com/s-corporations/

https://www.linkedin.com/pulse/20141029200621-29182363-disproportionate-distributions-in-an-s-corporation

Please let me know if I can assist you further.

Thank you and best regards,

Barb

Expert:  bkb1956 replied 16 days ago.

Just following up with you to see if you have any other questions. If so, please let me know so I can further assist you.

Best regards,

Barb