Expert: Michael N. Brette,J.D. - 9/17/2009

Question
I Have a S corporation with one hundred thousand shares.  I plan on selling shares to raise start up capital. I need $20.000 to build the infrastructure of the company. I have a friend who wants to invest in my business. We agreed on 3,333 shares of stock for $20.000. I also have two team team members helping me build the infrastructure as well as operate the company. should I issue them shares and how much? Do I have to pay taxes on the $20.000 when I deposit the check into the corporate account? Can I buy the stock back from the investor after a few years?

Answer
Thank you for the email. I am not sure why you formed an S corporation with all the IRS rules to comply with. Big mistake. If you did it because of tax reasons you should have formed an LLC  (Limited Liability Compnay). It has the same tax befefits without the IRS filings. S corporations have limitations on who can own stock in the S- corporation

Second, you cannot just issue stock to any one with complying with state and federal security laws. Get a good attorney before you do any thing else.

You pay taxes on incomre. Is the $20,000.00 income or is it a loan? Get a good CPA.