Because an S corp must be owned by individuals, trusts, or estates, in general S corp stock cannot be held by another S corporation, a C corporation, an LLC, or a partnership. Purchasing shares of another S corporation voids that company’s election of S corp treatment.
How do I change ownership of an S-Corp?
Transferring Ownership of Stock within an S Corporation
- Follow the corporation’s explicit stock transfer processes.
- Draft an agreement for the stock transfer.
- Execute the agreement then attain consideration.
- Record the transfer in the stock ledger of the corporation.
- Prepare to consent to an S corporation election.
Can a share of stock in a S corporation be sold?
Shares of stock are personal property that are transferable by the owner—barring any contractual restrictions on transfer, such as a shareholders’ agreement. If an S corporation shareholder wishes to sell all or a portion of their stock, the following procedure must be followed:
Can you gift shares of a S corporation?
Owning stock in an S-corporation raises some interesting issues, including whether you can gift the shares away. Whenever someone purchases shares of stock, that person receives an ownership interest in the particular corporation.
Are there restrictions on share transfer in S corporation?
To protect the S election from invalidation, S corporations often include restrictions on share transfers in their articles of incorporation or in a shareholders’ agreement. Be sure to check these documents before completing any stock transaction.
Can a closely held company be a S corporation?
In addition to avoiding negating the specific requirements of an S-corporation, the closely-held nature of the company may have restrictions on stock transfers that are set forth in the shareholder agreement.