S Corp setup
A buyer plans to acquire an existing business in Pennsylvania and establish an S Corp to save on payroll taxes. Three shareholders collectively invest $340,000, but the contribution amounts do not match the equity ratios. The article provides professional clarification on accounting entries, whether to issue shares, and how to avoid triggering equity or tax basis changes.
I am purchasing an existing business in PA and will set it up as an S Corp to save on my 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 investing 200k for 10% equity, shareholder 3 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?