S Corp Ownership Agreement

S companies generally enter into shareholder agreements to prevent shareholders from transferring or selling their shares to ineligible shareholders. The transfer of shares to an ineligible shareholder could allow an immediate termination of the selection of the company`s S sub-chapter. The choice of sub-chapter S allows small businesses to be taxed as a unit that is not taken into account. The advantage is that the company is not obliged to pay income tax at the company level. Instead, profits and losses are passed on to shareholders. Company S can thus avoid double taxation of dividends and net income. In the case of a C-capital company, income is taxed at both the shareholder and corporate levels. When the shares of an S company are transferred to an ineligible shareholder, the choice of the company`s sub-chapter S ends immediately. Company S immediately takes the status of Company C. Automatic termination can have significant tax consequences for a company. The right agreement helps protect your rights as an owner and shareholder. It can also protect shareholders and the company itself from errors or misbehaviour by a single shareholder through a compensation clause.

Don`t risk the work you`ve invested in your business. Contact our offices for a shareholder pact that is tailor-made for your Florida S business today. In each of these cases, the shareholder is not authorized to immediately inform Company S of its change in status and the company may not, moreover, have been informed of the change in the shareholder`s status (for example. B a non-subsidized trust fund may retain the same tax identification number as the previous trust funder). The involuntary termination of a company`s choice of S shares can have serious consequences, namely that the entity is retroactively taxed as a C capital company from the date of involuntary termination. When a company`s company`s status of S is terminated, it cannot re-elect Group S status for five years without the IRS`s approval. In addition, the shareholders` pact of a company S will contain a compensation clause requiring a holder to pay a change in the tax statute fee if the consequences result in automatic termination.

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