If it is a small corporation than I would think that all the shares must have been issued. So you may not be able to issue more share unless you do the paper work in this regard. I would suggest that you all sell part of the shares to to your sister or you all can also gift part of your share to her so that she gets 5% share.
This would a rather simpler way to handle this situation.
Let me know if you have any question. Bonus and Feedback will be highly appreciated!!!
Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.
Once an S election is made, it remains effective as long as she is qualified to be a S Corp stockholder. SO you do not have to submit the Form 2553 again.
You will report her share(change of ownership %) on the tax return that you file. There is no separate paperwork required to be filed to the IRS.