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Thread: How Balance Sheet should be setup multiple partners with S-Corp

  1. #1

    Default How Balance Sheet should be setup multiple partners with S-Corp

    Hello,

    I am in a family business where I and some other relatives were just gifted a minority share of the company as we start the process in our succession planning. I am going to meet with an accountant in a few months once we are preparing our estimated taxes but trying to do research to get educated....

    The majority owner of the company is also the founder and historically has had 100% of the company. He has now gifted 10%, 5%, and 5% respectfully to the 3 new partners so now there are four owners.

    On the balance sheet we do have Retained earnings, distributions, etc. How does that work now with partners in the business? Do we need separate G/L accounts on the balance sheet for retained earnings and distributions for each of us? or do we keep one retained earnings and create different distributions?

    Since this is a gifting situation and not a purchase situation I would "assume" all of the retained earnings stay to date with the founder and we are going to receive benefit to the future earnings of the company. What is the best way to represent this on the balance sheet?

    I have done lots of searching and find a ton of examples of simple balance sheets with a single owner but nothing showing partners. I am familiar with accounting principles, but it is this multiple own under a S-Corp that is confusing me a bit.

    Thanks!

  2. #2

    Default

    Let me start by saying that I am not an accountant.

    Like you, I ended up owning part of an S Corp when my father gifted me a percentage of his shares. You won't need to separate the retained earnings or distributions. The current retained earnings are tied to the shares of the company (unless a new class of shares was created), so you now own a percentage of them as well. Any distributions that are made in the future should be done in the appropriate percentages, so if $100,000 cash is being distributed in total, $80k would go to the majority owner, $10k to one shareholder and $5k to each of the other two.

    A K-1 will be generated each year and each shareholder will be allocated a portion of the profits (or losses) according to their ownership stake. It's really pretty simple.

  3. #3

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    Quote Originally Posted by RetiredMfr View Post
    Let me start by saying that I am not an accountant.

    Like you, I ended up owning part of an S Corp when my father gifted me a percentage of his shares. You won't need to separate the retained earnings or distributions. The current retained earnings are tied to the shares of the company (unless a new class of shares was created), so you now own a percentage of them as well. Any distributions that are made in the future should be done in the appropriate percentages, so if $100,000 cash is being distributed in total, $80k would go to the majority owner, $10k to one shareholder and $5k to each of the other two.

    A K-1 will be generated each year and each shareholder will be allocated a portion of the profits (or losses) according to their ownership stake. It's really pretty simple.
    Sorry for the slow response. I never saw the notification you posted this. So two followup questions for you:

    1. The former owner and now majority owner was expecting that any existing retained earnings remains with him and it is from the time we became shareholders (any new earnings). Does that change how we would account for it?
    2. Let's say we do not take our percentage of distributions in the end of the year because we want to keep cash in the business. How do we represent that on the balance sheet? For example, for easy math lets say Majority owner is 80%, I am 10%, and another is 10%. Lets say the majority owner takes a small distribution as he does not need it at this time. I take 5% and the other person takes 10%. I am still "owed" 5%. How do I represent that?

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