- quote -

What you really want is a signed S Corp shareholder
agreement signed by all shareholders putting in writing that
the company will distribute to each shareholder enough money
to pay for any taxes generated due to the pass through of
company profits.

These payments would be classified as a distribution,
therefore it is important that each shareholder receive a
distribution in proportion to the number of shares owned.
Otherwise the company would be considered to have made a
disproportionate distribution and its S election would be
terminated.

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"nearly blind" <nearly_blind[at]yahoo.com> wrote:

- quote -

As a S-corp business Company's PROFITS are taxable to
shareholders regardless of a distribution or not.

Remember S corp profits are not relative to Cash received.
You may not receive 1 penny of DISTRIBUTION but you may be
forced to pay taxes I mean you WILL be forced to pay taxes
on th ePaper pROFIT.

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We're in the processes of froming a company (5
shareholders). and trying to decide whether to elect S
status. The corporation will be profitable from day one (we
already have a large contract coming in as soon as the
incorporation is finished). I've read much about the pros
and cons of S versus non-S corps, but have an issue that I
have not seen discussed.

Since I'll be a minority shareholder I'm conerned about
selecting S status since I won't have full control over the
financial decisions and therefore won't be able to have
direct control over the profit or loss that gets passed on
to me in a given year. E.g. I could be forced to pay taxes
on a large yearly profit that was never distributed to
shareholders.

One of the others has suggested that the S corp. can have a
policy of paying the shareholders taxes on profits. How
would this work?

If the corporation did make these individual tax
compensation payments how would they be classified on the
corporations books? I'm guessing it would simplist to make
the payments as dividends since the allocation is based on
shares, same as the profits, but this would not take into
account each person's different marginal tax rates.

Note that in my state corporate taxes are 9.5% which means
that the C corp tax rates will be > 40% but our individual
marginal tax rates will be about 8% less.

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