# How to Calculate the Capital Percent of a S-Corporation

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An S corporation is a corporation that has made a voluntary election to be taxed under the rules of Subchapter 1 of the Internal Revenue Code of the U.S. While an S corporation is a creation of federal tax law, it is also recognized by many states for taxation purposes and is subject to the laws in the state in which it was incorporated. As required under the Internal Revenue Code, S corporations may only issue one class of stock. With a single class of stock, it becomes very simple to calculate the capital percentage. The two types of ownership percentage business owners and investors are commonly concerned with are the ownership percentage (non-diluted) and the diluted ownership percentage.

### Things You'll Need

• Total number of ownership shares you wish to calculate ownership percentage
• Total number of ownership shares outstanding
• Total number of shares tied to convertible securities outstanding
• Total assets of the corporation (optional)

## Calculation of Basic Capital Percentage

Divide the total number of ownership shares you wish to calculate ownership percentage for by the total number of ownership shares outstanding. The result will be a decimal, such as 0.2550.

Move the decimal point two places to the right and express as a percentage. For example, 0.2550 becomes 25.50 percent. You have now calculated the basic capital percentage.

Multiply the basic capital percentage by the corporation's net assets to determine the capital value allocatable to the ownership interest you are examining.

## Calculation of Diluted Capital Percentage

Add the total number of ownership shares outstanding to the total number of shares tied to convertible securities outstanding. This gives you the total number of ownership shares outstanding if all options are exercised.

Divide the total number of ownership shares you wish to calculate ownership percentage for by the total number of ownership shares outstanding if all options are exercised. The result will be a decimal, such as 0.2550.

Move the decimal point two places to the right and express as a percentage. For example, 0.2550 becomes 25.50 percent. You have now calculated the diluted capital percentage.

## Tips & Warnings

• Convertible securities may be bonds that may be transferred to ownership shares, stock options, or similar instruments.
• The diluted capital percentage represents the capital percentage if all potential ownership interests were transformed into shares of stock in the S corporation. This is useful, as if the company is successful, it is assumed investors will exercise share options.
• This calculation of capital percentage is for a single point of time. When calculating the capital percentage over a period, it is necessary to use the weighted average of share ownership.
• The calculation must be performed with the number of ownership shares outstanding. Do not confuse this with the number of ownership shares issued or the number of ownership shares authorized. These numbers may differ.

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