Legal Question in Business Law in California

Re: Changining Ownership/ Sharedholder of an S -Corp

I strongly recommend that you get legal counsel of your own. Where real estate purchases are involved, I assume we're taliking real money - hundreds of thousands of cash or credit - and not a few hundred as in many "S" startups, where it may make sense for the founder to proceed without legal advice.

You have a large number of issues or potential issues here. Let me point out a few:

(1) Putting separate-property money in a joint account with one's spouse is a first step in the money becoming "commingled" so it loses its separate-property characteristic. Doing this does not automatically transmute the funds, but it may raise questions in a future dissolution of the marriage.

(2) Dealing with other peoples' money, including your parents', raises potential legal and ethical problems. Things may be fine now, but if the investment sours or is lost because in a future divorce proceeding the funds or property became transmuted (changed from separate to community), you could be subject to criticism or lawsuit.

(3) When property changes hands, as from your corporation to your parents as individuals, there are tax issues. The changes of ownership trigger gift and capital-gains questions and possible tax liability. Also, some of these transfers may trigger reappraisal for property-tax purposes.

(4) Your spouse may gain a community-property interest in your corporation if you work in or for it while married.....your activity in running it may be held to make part of its earnings community income. Remember that the wages and salaries of married people are community property, and that could include the value of your services to the corporation. Such a community interest would be despite lack of issuance of stock to the spouse.

I'm not asserting that all, some or any of these problems will actually arise here; only that they could, and an ounce of prevention is worth it.