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I am a bookkeeper for a very small S Corporation. there are

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I am a bookkeeper for...
I am a bookkeeper for a very small S Corporation. there are two shareholders one of them is buying out the other. Can you help I must have expert advice
Submitted: 2 years ago.Category: Finance
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Answered in 31 minutes by:
9/3/2015
Financial Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 12,875
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi,

...

Typically this is done by having the S-Corp buy out the shareholder

...

Ideally there's a shareholder agreement in place.

..

When I do this for my clients the agreement contains a buyout clause (which has the requirement that the shareholder sell their shares back to the company). Protects the tax status for one thing

...

It will also define what the price per share would be in the case of a buyout.... Or sometimes a corporation will negotiate a price. Either way, the S-Corp then exchanges cash for the shareholder’s stock.

...

So what you end up with here is treasury stock. ... recorded solely on the S Corporation’s balance sheet. The transaction will result in the cash account being decreased, or debited, by the amount of the repurchase price. ... Then to balance the cash account deduction, the S Corp creates a “treasury stock” account in the balance sheet (equity section). The S Corporation will then credits that account by the amount of the stock reacquisition price.

...

Once done, the S Corp has to issue the departing shareholder his last K-1 and submit a copy of that form to the IRS. You'll mark the box for Final K-1. The K-1 should cover the shareholder’s portion of the business’s financial activity for the period, starting at the beginning of the business’s tax year to the day he sold his shares.

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Financial Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

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Lane

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Lane
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Category: Finance
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