So, when this started, let's say one party put in $50, the other four got their ownership for $0. That is their original basis in their ownership.
Let's say there was $80 in losses, split evenly. After the distribution
of losses, one member had basis of $34, the other four had -$16 each. Let's also say that all 5 had basis or at risk to use the losses.
Now as an S corp, the equity section might look like this:
Stock - Owner A 50
LLC distributions (A) 16
Stock - Owners B,C,D,E 0
LLC distributions (B, C, D, E) 64
for -$30 in the equity section.
No negative retained earnings, and the books make sense.
Hope this helps. Thanks again from Just Answer.