How to Transfer Ownership Within an S-Corp

S corporations—known as S-corps—are small corporations (less than 100 shareholders) that complete Form 2553 and are granted S-corp status by the IRS. (S-corp is a tax status, not a business entity.) Like any corporation, S-corps are owned by individual shareholders, which means transfer of ownership happens with a transfer of stock. Here are some ways ownership can be transferred within an S-corp:

Issuing new stock shares

You can issues new shares of company stock by by creating a bill of sale—BUT make sure you’re following the protocols set-out in your Articles of Incorporation. Keep in mind that you cannot exceed the total number of authorized shares stipulated in your articles, so you will need to determine a company valuation to see whether or not creating new stock shares is possible. Before you issue new stock, you will also have to make sure your board of directors votes to approve that decision.

Read more about creating a bill of sale on Northwest’s How to Issue Corporate Stock page.

Selling existing stock shares

Barring any contractual restrictions, a stock owner can simply sell their shares in a company to another individual. This process requires contracts and paperwork—like a company shareholder agreement and stock purchase agreement—so you might want to seek legal counsel to determine everything you will need to complete this transaction.

Through a shareholder’s estate

Sometimes, stock shares are transferred by default upon a shareholder’s death. Corporate stock is often included in a person’s estate, which means—in the wake of their death—stock shares will be transferred to that person’s heirs. However, this process isn’t necessarily cut-and-dry, as corporations can include provisions in their corporate bylaws to prohibit the transfer of stock in certain circumstances.

As is the case with most legal and financial matters, it’s a good idea to consult a business lawyer or accountant when it comes to how you should address selling your stock.