What would be the accounting entries for the buyout of one of two owners of an S-Corp with the following circumstances: 1) both owners have capital accounts of $500 each ($1,000 total) 2) the continuing owner takes a loan of $100,000 to pay the leaving owner for their share (market value) of the company. Also, what IRS document should be issued to the leaving owner?
Ownership Buyout
Feb 09, 2006
2 Replies
wrote
Seems like this is a shareholder to shareholder transaction. In the books, there isn't much except the stock/capital account of $500 and $500 is now just $1000 to one shareholder. Outside the books, the surviving shareholder increases his cost basis by $100,000.
The selling shareholder reports the gain or loss on his stock sale.
What would be the entry if the continuing owner received the loan in the corporation's name and opted to have the corporation buy back it's own stock? In this situation, the continuing owner receives the liability protection of the corporation.
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