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The owners of S corporation called as shareholders. As per the rules of Internal Revenue Service, the shareholders are limited to one hundred. Proper transfer instruments allows to changes in the shareholder percentage. The transfer of ownership and changes are governed through shareholder agreements. The transfer of ownership in an S corporation can be done by selling of shares from one to another.
The purchase and sale of shares also happen without shareholder’s agreement. But transfer of shares will be effective only after registering transfer instrument. When the transaction is completed, the selling party will deliver share certificate to the buying party which is evident the ownership of shares. As long as the updation of said sale is pending, there will be no changes in ownership of S corporation during the year end or at any time.
The stock transfer agreement is required to be signed by the transferor and transferee and such notice of change in ownership should be intimated o Internal Revenue Service in Form 2553. Without any additional investment, the ownership of S corporation cannot be changed. Even transmission of shares to others causes internal transfer among new members but changes in percentage will not occur.
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One of the owners has given 97 % of the capital and continues to fund the company through shareholder loans. However his partner is his brother. He wants to give his brother 25% from 33%
Can this be done
Shareholder funds are different from the loans. Irrespective of relation, the company grant the loans though the brother may be partner or not. Giving loan to the brother do not increase or reduce the value of shareholder.