There is a saying that it is better to give than to receive, and that is certainly the case when it comes to transferring ownership of stock to someone else. Unfortunately, rules and regulations have made it hard for you to simply go through the process of gifting S Corp Stock to someone else. Regardless of whether you want to change the ownership percentage of your company, or transfer S Corp Stock to a family member, you must make sure you go through the process properly. Otherwise, you could incur numerous unnecessary taxes.
→ Free Download: S-Corp Stock Transfer Template [Access Now]
Can You Give Stock To Someone as a Gift?
Yes, you are allowed to give stock to a family member, or anyone else, as a gift. If you already own stocks and want to transfer them to somebody else, you will need to transfer the stocks from your brokerage account to someone else’s brokerage account. If the other person does not have an active brokerage account, they will need to open one.
The Pros and Cons of Gifting Stock
You need to be familiar with the pros and cons of gifting stock to somebody else. Some of the benefits include:
- If you gift stock to children, compounding interest over an additional 18 years can give them a great head start on life.
- If you gift stock to someone in a lower tax bracket, they might not have to pay as much money in taxes if they sell the shares.
- If you decide not to sell the stock yourself, you can avoid paying capital gains taxes, saving money.
- It could also be a great way for you to support a nonprofit organization.
On the other hand, there are a few drawbacks to gifting stock to someone as well. They include:
- Gifting stock to someone can be more complicated when compared to other gifts.
- The other person could still incur capital gains taxes.
- You might find that it is simply easier to open a custodial account and purchase stock on behalf of a family member.
| Pros | Cons |
| Compounding interest benefit for children. | Complexity compared to other gifts. |
| Tax advantages for lower tax bracket recipients. | Potential capital gains taxes for the recipient. |
| Avoidance of personal capital gains taxes. | Simplicity of custodial account as an alternative. |
| Support for nonprofit organizations. | Thorough Examination Required |
Therefore, it is important to take a closer look at the details of the process.
How To Transfer S Corp Stock To Someone Else
If you would like to transfer stock to someone else, the exact step can vary depending on the brokerage you use. These are the general steps you need to follow:
- Talk to the other person to see if they have a brokerage account. They don’t necessarily have to have an account with your broker, but they need to have one they can use.
- You need to get the Account Details from the recipient. This includes the name of the receiving firm, the account number of your recipient, and the DTC number tied to the firm.
- You must authorize the transfer. Typically, you need to fill out a form and sign it. Here is an example form from Fidelity.
- Finally, you will need to wait for the transfer to be completed. It can take a week or two for the process to be finalized.
By avoiding the sale of S Corporation stock to another shareholder, you could save money on taxes.
Does the Recipient Pay Taxes on the Stock?
Typically, stock is only taxed when it is sold. Here is a table regarding capital gains taxes on stock sales in the United States:
| Capital Gains Tax Rate | Single Filers | Married and Filing Jointly |
| 0% | $40,400 or Less | $80,800 or Less |
| 15% | $40,401 to $445,850 | $80,801 to $501,600 |
| 20% | Above $445,850 | Above $501,600 |
Follow the corporation’s explicit stock transfer processes
Refer to the corporation’s bylaws or buy-sell agreement between the shareholders and the transfer of shareholder ownership. Many well-run S corporations limit stock transfers to preserve a corporation’s sub-chapter from any revocation via the accidental stock transfer to ineligible parties. An S corporation might require third party approval to whom you want to transfer the stock. It also might prohibit the transfer altogether and instead require that you sell the stock back to the corporation. S corporations are unique in that the owners of the smaller businesses do not have to pay corporate tax, only individual. Because of this, however, the IRS has specific rules to follow when it comes to transferring shares.
Draft an agreement for the stock transfer
Set up the terms of a transfer, which may involve a sale of the shares in exchange for a gift of shares or money for no consideration. Per IRS requirements, an S corporation only is permitted to have 100 shareholders or less. Usually, the S corporation is privately held, not public, primarily because of the stock ownership limitations. Shares can’t be bought and sold on the open market with a stock exchange and broker. The parties of the transfer of S corporation shares agree to terms privately and draft a contract as a written agreement.
Execute the agreement then attain consideration
Both the shareholders and S corporation must sign the stock transfer contract. If an S corporation issues a paper stock certificate, the current owner must sign them over to a new owner. If shares are being sold, a buyer must transfer payment to a seller.
Record the transfer in the stock ledger of the corporation
The S corporation must maintain an accurate ledger of stock ownership within a company. The board of directors’ secretary must note the date of a transfer and sales price, then record the social security number and the contact information of the new owner.
Prepare to consent to an S corporation election
One requirement for sub-chapter S status is that every shareholder consents to the election in writing. A consent form includes a notarized declaration that a shareholder concurs that a company must be taxed under sub-chapter S. Once the new shareholder proxy signs the form, shareholder materials can be mailed and then filed in a corporation’s records.
Using a Stock Transfer Agent for your S Corp
If you are looking to better track and manage your S Corp shareholders, a transfer agent can do that for you. Colonial Stock Transfer is an SEC-registered transfer agent and has been in good standing with the SEC for over 35 years. Our stock transfer services will allow you to do the following:
- Track your investors in our investor and cap table management online platform
- Meet compliance regulations with SEC, IRS, and UCC code
- Allow investors can log in to our systems to see their stock holdings, transactions, account information, and more.
- Outsource full support for your shareholders to us
To get started, please contact us.
