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03 - Buying a Business Making a Business Investment or Acquisition
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  #1  
Old 11-08-2005, 08:44 PM
jweiss jweiss is offline
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Location: Panama City Beach, FL
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Default S-Corp Dividends

Hello,

#1 I just formed an S-Corp and have a couple of potential investors. I am authorized to issue 1 million shares. How do I place a value on each share?

#2 Is there a way I can designate in my bylaws that no dividends will be paid unless the company has a profit for at least 3 consequtive quarters?

#3 Do I have to pay CASH dividends?


#3 How do I calculate dividends payable?

I apologize if this is too many questions in one... This is the first time I have posted on this website and I always have a lot of questions

Thank You
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  #2  
Old 11-08-2005, 10:05 PM
OldJack
 
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Quote:
Originally Posted by moxie
#1 I just formed an S-Corp and have a couple of potential investors. I am authorized to issue 1 million shares. How do I place a value on each share?
The articles of incorporation authorized 1 million share common stock and it usually says "par value" of $ or "no par value". If the share are no par value then you record the sale of shares at whatever price you sell them for, whereas, if they have a stated par value you record them when sold as issued at par value with any excess proceeds as additional paid in capital.

Initial sale to yourself should be at a very low price that issues you controlling number of shares. Such as 1¢ per share as the value of the shares is equal to the value of the corp assets and initially that is zero or close to zero. After that it is sell the shares for whatever a willing buyer is willing to pay and the company is willing to sell for $$. The only catch is that if you sell me shares at $100 per share don't then try to sell yourself shares at 1¢ per share as the assets of the corporation at that time would be at least $100 per share.


Quote:
Originally Posted by moxie
#2 Is there a way I can designate in my bylaws that no dividends will be paid unless the company has a profit for at least 3 consequtive quarters?
Yes, but you have to remember that bylaws can be amended by the board of directors as they are the ones that usually write bylaws. However, bylaws usually have to be approved by shareholders and the board of directors are elected by vote of the shareholders.

Quote:
Originally Posted by moxie
#3 Do I have to pay CASH dividends?
A S-corp does not pay "taxable dividends" unless it had earnings from being a C-corp before electing S-corp status. A S-corp pays tax-free "cash or property Distributions" from profits that each shareholder has paid tax on. Your investors might not like paying income tax on the S-corp profit without receiving cash distributions of the profit. How would you like to pay tax on $100,000 profit without getting the cash to pay the tax?

Quote:
Originally Posted by moxie
#3 How do I calculate dividends payable?
The board of directors declare dividends in whatever method they wish.
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