Ownership Buyout


L

limanov

What would be the accounting entries for the buyout of one of two
owners of an S-Corp with the following circumstances: 1) both owners
have capital accounts of $500 each ($1,000 total) 2) the continuing
owner takes a loan of $100,000 to pay the leaving owner for their share
(market value) of the company. Also, what IRS document should be
issued to the leaving owner?
 
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P

Paul Thomas, CPA

What would be the accounting entries for the buyout of
one of two owners of an S-Corp with the following
circumstances: 1) both owners have capital accounts
of $500 each ($1,000 total) 2) the continuing owner
takes a loan of $100,000 to pay the leaving owner for
their share (market value) of the company. Also, what
IRS document should be issued to the leaving owner?

Seems like this is a shareholder to shareholder transaction. In the books,
there isn't much except the stock/capital account of $500 and $500 is now
just $1000 to one shareholder. Outside the books, the surviving shareholder
increases his cost basis by $100,000.

The selling shareholder reports the gain or loss on his stock sale.
 
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L

limanov

What would be the entry if the continuing owner received the loan in
the corporation's name and opted to have the corporation buy back it's
own stock? In this situation, the continuing owner receives the
liability protection of the corporation.
 

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