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CGCPA
CGCPA, CPA
Category: Tax
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Experience:  over 40 years experience in tax matters
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I have a small corporation where I initially issued shares

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I have a small corporation where I initially issued shares to founders at par value of .001. After that, I raised some capital selling shares to friends and family. The company currently has a book value of 0 or less than zero. Am I able to offer shares to someone at par value again.
Submitted: 3 years ago.
Category: Tax
Expert:  CGCPA replied 3 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

 

You are free to issue shares at par value at any time as long as you do not exceed the number of shares authorized in the corporate documents. You also need to stay away from any form of solicitation of investment or you may run afoul of the Securities Exchange Commission or your states laws.

Customer: replied 3 years ago.
But what are the tax ramifications for the person I issued the stock to at par value after someone else paid more for the stock. In effect, I want to give this person extra stock at par value as an incentive to put more money in. He is concerned about any tax ramifications of the portion I give him at par value since he has purchased the same company stock at a higher value as well. Once again, our book value is still currently zero.
Expert:  CGCPA replied 3 years ago.
The present book value does not matter. Stock cannot be issued for less than par value. Investing additional funds will not have any tax ramifications for him of a negative type. He will if this is an S Corporation, however, recognize a greater portion of the loss (if it occurs) with more shares. This will have a positive tax ramification for him in that it will reduce his taxes. Another individual, paying over par, will legally have the right to additional shares (at par) to maintain his % ownership. That individual must be given the opportunity to acquire additional shares. He can decline.
Customer: replied 3 years ago.
Sorry for the follow up questions but I want to make sure I have it right.

1. I won't be diluting anyone because this stock was reserved for key employees, friends and family etc. and factored in
2. We are a C Corp so there are no S Corp issues
3. He has paid far higher than par value for other stock in the recent past.

Essentially, I want to issue him additional stock at nominal cost (par value) and he thinks that the stock he is getting at par value is a tax event since he and others bought the stock at a higher amount in the recent past. i want to be able to issue him the stock at par value and not have it be a negative tax event for him. Since the company really has no sales yet and no positive book value, I hope we can legally issue the stock at par value to him and him not have to pay taxes on the difference between the par value and the amount others paid for the stock.
Expert:  CGCPA replied 3 years ago.
First, item 3 is not relevant to this situation. There is no tax consequence to him. If the business fails he may have a financial loss but he can claim this on his returns using Schedule D. He and you can look at this in a simple way. If I buy shares in Ford for $4 per share but you buy the same number of shares at $7 each neither of us has a tax consequence. Additionally neither of is necessarily paying par value. Par value is merely the minimum price for which the corporation can issue shares.
CGCPA, CPA
Category: Tax
Satisfied Customers: 3738
Experience: over 40 years experience in tax matters
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