How do I Change the Ownership of an Indiana S Corporation?
An S corporation is a common way to incorporate a business. This type of legal structure protects the business owners from incurring lawsuits and claims against their privately held assets and property, should legal action or bankruptcy befall the corporation. In addition, S corporations avoid the double taxation that C corporations with an unlimited number of owners experience. Like C corporations however, S corporations are owned by shareholders or stock holders. Because of this, changes to ownership of an S corporation occur at the stock holder level, when one stock holder sells shares of the corporation's stock to another party.
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Things You'll Need
- Certified Professional Accountant (CPA)
- Purchase agreement
- Evaluation of stock
- Purchase price
- Stock sale
Instructions
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How to Change Ownership in an S Corporation
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Consult a Certified Professional Accountant (CPA), as any change in ownership of an S corporation could have serious tax implications. If the S corporation is not publicly traded, which most S corporations are not, then you will need a CPA to help you complete the transaction. When changing ownership of an S corporation, the owner wishing to sell his shares must assign a financial value to the shares in order to determine a purchase price. The buyer and seller must agree on the share price. Since S corporations generally have few owners (by law they must have less than 75), when one owner leaves, it is best to have an unbiased or neutral third party such as a CPA ensure that a fair purchase price has been established for the sale. This will help protect the company from any improper behavior should the IRS choose to conduct an audit.
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Create a purchase agreement. Once buyer and seller have agreed upon a purchase price, a purchase agreement should be drawn up. Purchase agreements are commonly used when buying a house. The buyer and seller must draft and sign the agreement, which is usually provided by a real estate agent, unless the homeowner is selling on his own. This agreement must detail how many shares are being sold and signify a date of sale.
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Record the sale. After the transaction of selling the stock shares has been completed between buyer and seller, the company will need to create a record of the sale in its accounting books. The corporation's legal documents may also need to be updated to show the change in ownership.
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References
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