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    3 Replies Latest reply on Jan 14, 2008 8:38 PM by TVS2007

    Funding an S-Corp

    TVS2007 Newbie
      Funding of an S-Corp confuses me. The S-Corp I am setting up will have two shareholders. Am I correct that all startup-costs need to be covered at the beginning? We cant just keep funding the startup costs by writing multiple checks to the Corp as we go right? Not really sure what I am asking but I know it is important to keep S-corp activity separate from personal.

      Also does anyone have comments on the fact that I am financing most of these costs but the shares will still be divided equally? In a way, I'm financing, and the other shareholder is bringing intrinsic capital.

      I already have a S-corp where I am the sole shareholder, and the business, when incorporated did not require funding. Its the multiple shareholders, and startup funding that confuse me.

        • Re: Funding an S-Corp
          Lighthouse24 Ranger

          By definition, start-up costs are the costs you pay or incur before the day your active trade or business begins. Anything after that (except qualified organizational costs) is generally capitalized.

          If you expect to have a first year profit, I'm not seeing a problem. It's sometimes advantageous to "pay as you go" the way you described, because you can usually write off the whole amount of most of the items you're considering (instead of having to amortize and depreciate them, as you might if you listed them at start-up). But if you expect a first-year loss, there may be no benefit since a sub-S requires distribution of the loss (it seems you'd be better off stretching the deductions over several years in that case). Of course, all this is just general info, without really knowing the details of your business.

          The shares don't have to be divided equally. Whether or not they should be is your call, so I'm not sure what kind of comments you're looking for.


          Hope this helps. Best wishes.
          1 of 1 people found this helpful
            • Re: Funding an S-Corp
              TVS2007 Newbie

              It is doubtful that there would be a loss this year, There are just some startup costs being that it is a web-based business. There will be some startup costs developing the website and support things while the business gets to the point where it is self-sustaining. Its just this whole corporate veil stuff that confuses me a bit, I dont want to violate any of the corporate identity 'rules' or whatever you want to call them. Since we dont know how much capital it will take to reach the self-sustaining point, it would be great if the startup costs going to the corporation could be spread out a bit as needed rather than a lump sum to start that is somewhat of a guess.

              I know the shares dont have to be divided equally, not real sure why I even mentioned that. Thanks
            • Re: Funding an S-Corp
              LUCKIEST Guide
              2007, An S Corp permits a corp to be taxed as a partnership. How did you set up the S Corp??
              Did you have a Lawyer?? The shares DO NOT have to be divided equally.
              If the agreement says that you finance, and the other shareholder brings intrinsic capital, so be it.
              And if start up costs are a loan, the stockholders should get their investment back.