USA Setting up S Corp

[jdoles214]

I was hoping to talk through a couple of things. Thanks in advance to anyone who helps!

I am purchasing an existing business in PA and will set it up as an S Corp to save on my own personal salary’s payroll taxes.

There are 2 silent investors besides myself and we are investing a total of 340k:
I (shareholder 1) am investing 90k for 87.5% equity,
shareholder 2 is investing 200k for 10% equity, and
shareholder 3 is investing 50k for 2.5% equity.
I need help on a few things:
- What is the accounting entry on the books? (Considering my equity is higher as a percentage of capital contributed)
- Do we need to issue shares, or can we just have K1s issued with the appropriate equity percentages?
- We can’t distribute to shareholders disproportionately, has to be pro rata, which we are going to do. So is there anything besides thay to be sure we do or don’t do so we don’t ever accidentally trigger a change in equity or basis or C Corp
- If I want to simply give 2.5% of my own equity to shareholder 3 in the future for nothing in return, what would that look like, what should be done to do that the right way?

 

[Werner Reisacher]

You are in the process of acquiring a business and setting up a legal entity. Saving payroll taxes should be the least of your concerns, considering the many legal, liability and conflicts of interest issues you could be faced with, if not all agreements and commitments that are made between you and your business partners are not clearly identified, documented, and agreed upon between all parties in writing.
I strongly advise you that you are looking for professional advice. An experienced accountant can advise you on all issues you raise, starting with the potential liabilities you may enter in the way you acquire a business, and whether or not the selection of an S-Corp. as the legal entity is your right choice. He is not allowed to give you formal legal advice but he can point you in the right direction and highlight the specific issues you might need legal advice on. This will help you to keep the legal cost to a minimum.
Good luck, and never forget, saving some money is always good, creating potential liabilities and unnecessary legal disputes with partners at a later date are time-consuming, annoying, and always turn out to cost a multiple of the cost for a good professional advice upfront - before the horse is out of the barn.