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Must a pass-thru entity always have shareholders?

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Avocet

Junior Member
What is the name of your state? OK

I'm considering incorporating and taking the sub S election. I would be the sole director.

The fill-in-the-blanks incorporation paperwork my state uses would "authorize" my company to issue shares, but do I have to issue any at all, even to myself? If there's no shareholders to pass thru the profit or loss to, what happens? Does it just accumulate tax-free inside the corporation? (I would follow all the IRS guidelines about reasonable wages for myself as a director, of course, and pay the proper quarterly payroll taxes on that.)
 


clueless3

Member
The fill-in-the-blanks incorporation paperwork my state uses would "authorize" my company to issue shares, but do I have to issue any at all, even to myself?
Issuing stock is one of those corporate formalities that, it may be OK if you don't follow, but it will be an issue if your corp ever gets sued (then the opponent can claim that your corp is simply a sham and proceed to sue you directly) or audited by the IRS (then they can say that your corp is a simply an alter-ego of yourself and may deem your deductions void).

If there's no shareholders to pass thru the profit or loss to, what happens?
In an S-Corp, you can distribute the profit to the shareholders or give bonuses to the directors.

Does it just accumulate tax-free inside the corporation?
There is no such thing as "tax-free accumulation" or profit within the S-Corp. The owners will be taxed at year-end for all profit realized.
 

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