{"id":14048,"date":"2023-10-28T16:12:04","date_gmt":"2023-10-28T22:12:04","guid":{"rendered":"https:\/\/wcginc.com\/kb\/vesting-and-expanding-ownership\/"},"modified":"2026-01-26T17:11:45","modified_gmt":"2026-01-26T17:11:45","slug":"vesting-and-expanding-ownership","status":"publish","type":"epkb_post_type_1","link":"https:\/\/wcginc.com\/kb\/vesting-and-expanding-ownership\/","title":{"rendered":"Vesting and Expanding Ownership"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 ez-toc-wrap-right counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table Of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/wcginc.com\/kb\/vesting-and-expanding-ownership\/#Basis_Problems\" >Basis Problems<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/wcginc.com\/kb\/vesting-and-expanding-ownership\/#Employee_Stock_Ownership_Plan_ESOP\" >Employee Stock Ownership Plan (ESOP)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/wcginc.com\/kb\/vesting-and-expanding-ownership\/#Hybrid_Purchase_Schemes\" >Hybrid Purchase Schemes<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/wcginc.com\/kb\/vesting-and-expanding-ownership\/#Recap_of_Expanding_Ownership_Issues\" >Recap of Expanding Ownership Issues<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/wcginc.com\/kb\/vesting-and-expanding-ownership\/#Taxpayers_Comprehensive_Guide_to_LLCs_and_S_Corps_2025_Edition\" >Taxpayer\u2019s Comprehensive Guide to LLCs and S Corps 2025 Edition<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/wcginc.com\/kb\/vesting-and-expanding-ownership\/#Talk_to_a_Small_Business_CPA_About_Your_Situation\" >Talk to a Small Business CPA About Your Situation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/wcginc.com\/kb\/vesting-and-expanding-ownership\/#Schedule_Discovery_Meeting_Now\" >Schedule Discovery Meeting Now<\/a><\/li><\/ul><\/nav><\/div>\n<div class=\"wpb-content-wrapper\"><p>[vc_row][vc_column][vc_column_text css=&#8221;&#8221; woodmart_inline=&#8221;no&#8221; text_larger=&#8221;no&#8221;]<img decoding=\"async\" class=\"size-full wp-image-31363 alignright\" src=\"https:\/\/wcginc.com\/wp-content\/uploads\/015344_408721357_vesting_schedule_300.jpg\" alt=\"\" width=\"300\" height=\"200\" \/>By <strong>Jason Watson, CPA<\/strong><br \/>\nPosted Sunday, October 29, 2023<\/p>\n<p>You, or someone you know, might have had a job where the company-match to your 401k was vested over time or the business had a restricted stock grant that only triggered after so many years of service. For most of our readers this concern is moot since the idea of expanding ownership is not on the radar. However, life is funny, and you never know how your path might change directions with left turns at right angles.<\/p>\n<p>If the transfer of stock and subsequent ownership is not handled correctly within your S corporation, this could be considered a second class of voting stock which nullifies the S Corp election. Therefore, if you are contemplating bringing in other owners or partners please read on. If you are not considering it, please read anyway so you have some basic knowledge of the problems.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Basis_Problems\"><\/span>Basis Problems<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>If you have a successful S Corp and you sell 10% of your stock to a key employee, you suddenly create a zillion headaches. First, what is the valuation of the stock? A valuation too low might be considered compensatory triggering an income tax obligation for the employee buyer.<\/p>\n<p>What is the cost basis of the shares? This is arguably easier since we would just look at your shareholder basis to determine the capital gain (if any). However, many business owners freak out when they are faced with a capital gain when selling a minority interest in the business.<\/p>\n<p>For example, WCG has a client who established a value of his business based on a long calculus. His basic argument was that he injected intellectual property into the business and therefore his shareholder basis was $250,000. Look at the big brain on Brad! No doubt, this guy was smart and his business was probably worth $250,000 from the beginning. However, he neglected some accounting basics and IRS law.<\/p>\n<p>In its simplest form, you cannot create basis in a business without paying income taxes on the money used to establish the basis. Huh? Let\u2019s say you have $1,000 in your pocket. You paid income taxes on that $1,000. You buy stock for $1,000 and sell it for $1,500. Your basis is $1,000 and your gain is $500. Piece of cake.<\/p>\n<p>Same with a business. You wrote a check for $250,000 and you paid income taxes on that money. When you sell your business for $400,000 you will have a $150,000 gain because the $250,000 was already taxed.<\/p>\n<p>Therefore, you cannot create basis out of thin air. In the case of intellectual property, the owner would have had to pick up $250,000 worth of income on his individual tax return somewhere in the past in order to have $250,000 of basis in his business. Same with a loan. If the bank gives you a loan, either through the business or through you personally, the principal payments are not tax deductible since it is essentially a return of capital. As such, if the personal loan is your injection to create basis in your business, it too is done with after-tax dollars.<\/p>\n<p>Another way to look at this is your personal home. You borrow $300,000 to buy a $300,000 house. Over the course of 30 years, you paid over $500,000 in total payments but when you sell the house, your basis remains at $300,000 (and hopefully the $200,000 in interest was tax deductible).<\/p>\n<p>Does this make sense? No? Crud. Perhaps have a nice Dale\u2019s Pale Ale and give us a call. We can try walking through it another way. We might need a Dale\u2019s too! Yum.<\/p>\n<p>Back to the headaches of selling 10% of your business to someone else. This 10% owner now gets a K-1 with 10% of the S Corp\u2019s net business income as taxable income. All shareholder distributions must be allocated among all shareholders. So, if you want to pull out $9,000 to pay for your family vacation, you also need to write a $1,000 check to your new 10% shareholder buddy. Cancel the flights. You might have to drive to vacation.<\/p>\n<p>Death, divorce and incapacitation. Does your Operating Agreement (LLC) or Shareholder Agreement (C Corp or Professional Corp) deal with death, divorce or incapacitation? You need to. What is incapacitation? Do you need two doctors to sign off? If the remaining shareholders have first right of refusal on the re-purchase of the crazy man\u2019s stock, how is that valued? It will be hard to negotiate in good faith with someone who is incapacitated.<\/p>\n<p>We touch on various other traps and pitfalls in an earlier chapter when expanding ownership.<\/p>\n<p>Speaking of value, 10% of the shares issued to the new shareholder have very little value. Since the S corporation is closely held, there is not a market to establish the value of the shares. A bank would probably not use the shares as collateral. The majority shareholder (you, in this string of examples) could run the business into the ground or simply shut the business down. The 10% shareholder has very little recourse outside of dissenting shareholder lawsuits (unless there is some contractual obligation governing these possibilities).<\/p>\n<p>Lastly, the 10% shareholder might want to be involved with daily decisions or long-term decisions. Sure, the majority doesn\u2019t technically have to listen or even care, but that isn\u2019t the most professional way to foster the new relationship. Office politics suddenly become a reality in a business in which you never had to consider it. Want to buy a business car? Might have to get permission. Yuck.<\/p>\n<p>So, what can you do? You have several options to bring in new owners without creating immediate problems, and you can get creative.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Employee_Stock_Ownership_Plan_ESOP\"><\/span>Employee Stock Ownership Plan (ESOP)<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>We mentioned this in an earlier chapter but we expand a bit to illustrate the challenges of expanding ownership and offer ESOPs as a solution for your S corporation. ESOPs are a great way to reward and incentivize employees. They also create a market for the shares of a departing owner or an owner who wants to expand ownership to the employees. Remember, if you have a growing business and you want to start working on an exit strategy or transition plan, using your own staff as future suitors might be the best idea. They have been vetted over time and know the business very well.<\/p>\n<p>Here are the basics of an ESOP. A business creates a trust where shares or cash to buy shares are contributed to the trust account. Each share is allocated to individual employee accounts. You can discriminate based on years of service, full-time versus part-time and age. There are rules on this of course. The default is 1,000 hours of service in a plan year and 21 years old.<\/p>\n<p>You can also create vesting schedules. For cliff vesting where the employee has either 0% or 100%, the maximum vesting schedule is three years. And for graded vesting schedules, the maximum is six years. This is because an ESOP is a qualified defined contribution plan and must follow the rules.<\/p>\n<p>Here is a sample schedule-<\/p>\n<table style=\"width: 70%;\">\n<tbody>\n<tr>\n<td style=\"text-align: center;\" colspan=\"2\" width=\"86\"><span style=\"color: #0000ff;\"><strong>3-Year Cliff Schedule<\/strong><\/span><\/td>\n<td style=\"text-align: center; width: 4%;\" width=\"58\"><span style=\"color: #0000ff;\">\u00a0<\/span><\/td>\n<td style=\"text-align: center;\" colspan=\"2\" width=\"86\"><span style=\"color: #0000ff;\"><strong>6-Year Graded Schedule<\/strong><\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center; width: 24%;\" width=\"86\"><strong>Year<\/strong><\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"115\"><strong>Vested %<\/strong><\/td>\n<td style=\"text-align: center; width: 4%;\" width=\"58\"><\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"86\"><strong>Year<\/strong><\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"115\"><strong>Vested %<\/strong><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center; width: 24%;\" width=\"86\">1<\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"115\">0%<\/td>\n<td style=\"text-align: center; width: 4%;\" width=\"58\"><\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"86\">1<\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"115\">0%<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center; width: 24%;\" width=\"86\">2<\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"115\">0%<\/td>\n<td style=\"text-align: center; width: 4%;\" width=\"58\"><\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"86\">2<\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"115\">20%<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center; width: 24%;\" width=\"86\">3<\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"115\">100%<\/td>\n<td style=\"text-align: center; width: 4%;\" width=\"58\"><\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"86\">3<\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"115\">40%<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center; width: 24%;\" width=\"86\"><\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"115\"><\/td>\n<td style=\"text-align: center; width: 4%;\" width=\"58\"><\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"86\">4<\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"115\">60%<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center; width: 24%;\" width=\"86\"><\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"115\"><\/td>\n<td style=\"text-align: center; width: 4%;\" width=\"58\"><\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"86\">5<\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"115\">80%<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center; width: 24%;\" width=\"86\"><\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"115\"><\/td>\n<td style=\"text-align: center; width: 4%;\" width=\"58\"><\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"86\">6<\/td>\n<td style=\"text-align: center; width: 24%;\" width=\"115\">100%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>You can find vesting rules in <a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/411\" target=\"_blank\" rel=\"noopener\">IRC Section 411(a)(2)(B)<\/a>.<\/p>\n<p>Here are some other takeaways on ESOPs. The percentage of ownership held by the ESOP of an S corporation is tax-deferred. For example, the S Corp earns $500,000 and the ESOP owns 40%. $200,000 of the taxable income should be added to the ESOP and allocated to each employee participant. This is a tax deferral not a tax deduction. When the employee sells or withdraws the shares (such as retirement) there will be a taxable event based on the individual\u2019s tax rate.<\/p>\n<p>This makes sense since an S corporation is a pass-through entity. So if an ESOP trust owns a portion of the stock, the beneficiaries of the trust (employees) will have a deferred tax obligation.<\/p>\n<p>As an aside, a common theme in income taxation is one person\u2019s deduction is another person\u2019s taxable income (mortgage interest is a great example). A great exception is charitable donations- your deduction is not a taxable gain to the charity. Back to the ESOP- if a business may deduct the cash or stock contribution into an ESOP, the taxable income is later picked up by the ESOP participants when the money is taken out.<\/p>\n<p>Here are some more takeaways. The law currently does not allow ESOPs for partnerships or professional corporations. Departing employees\u2019 shares must be re-purchased. Costs of these plans can be substantial (as much as $40,000 depending on complexity, according to the National Center of Employee Ownership).<\/p>\n<p>If you are seriously considering this please review Section 401(a) of the Internal Revenue Code in between P90X reps at the gym, contact the NCEO (<a href=\"https:\/\/www.nceo.org\/\" target=\"_blank\" rel=\"noopener\">www.nceo.org<\/a>) or contact us.<\/p>\n<p>Here is quick link to NCEO\u2019s article-<\/p>\n<p><a href=\"https:\/\/www.nceo.org\/articles\/esops-s-corporations\" target=\"_blank\" rel=\"noopener\">wcginc.com\/6113<\/a><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Hybrid_Purchase_Schemes\"><\/span>Hybrid Purchase Schemes<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>If the ESOP doesn\u2019t suit your needs and if you are afraid of introducing additional ownership through a simple stock sale, the sky is the limit on creating your own scheme. Time to put your thinking cap on.<\/p>\n<p>Again, this is under the auspice of the problems of having an S corporation and wanting to expand ownership. Expanding ownership in a multi-member LLC does not have the same problems with distributions and allocations as an S Corp.<\/p>\n<p>WCG recently consulted on a buy-in scheme involving several millions of dollars. A trust was created and funded with profit incentives. In approximately ten years, if profit goals were achieved, the trust would be fully funded, and a partnership would come to life. The funds would be directed by the trust and trustee to purchase a large chunk of the business for the benefit of the new LLC.<\/p>\n<p>Initially the attorneys involved had an arrangement set up where three key employees would eventually be the members of the LLC (in other words, partners in a partnership). However, it was suggested to us that even key employees might come and go. Instead, each employee invited to participate would be granted units from a pool depending on years of service. Units could also be re-deposited back into the pool upon departure of a key employee.<\/p>\n<p>This allowed seniority and longevity to become valuable, but the owner could also assign additional units as he saw fit depending on an employee\u2019s individual contribution. The owner was also able to grant some units to his children to ensure their long-term legacy and wealth transfer.<\/p>\n<p>In addition, the funding was augmented by cash value whole life insurance to protect the current owner\u2019s interests and to help fund the transfer of ownership.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Recap_of_Expanding_Ownership_Issues\"><\/span>Recap of Expanding Ownership Issues<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Creating ESOPs, buy-in schemes, Buy-Sell Agreements, and the like, for an S corporation requires a talented business law attorney in concert with business consultants who can draft the corporate governance documents correctly. This stuff is state-specific but also must follow national guidelines within the IRS, ERISA, DOL, etc.<\/p>\n<p>Moreover, and we will expand on this in a bit, you need to be aware of ineffective S Corp elections because of side pot deals and extraneous contracts \/ promises made to others.<\/p>\n<p>Let us know if you need help in selecting a proper attorney, and adding some creativity and protection to your scheme.[\/vc_column_text][\/vc_column][\/vc_row][vc_row][vc_column][vc_empty_space height=&#8221;25px&#8221;][vc_column_text]<style data-type=\"vc_shortcodes-custom-css\">#wd-6915e3dd2a9b5 .info-box-title{line-height:40px;font-size:30px;color:#473d3c;}#wd-6915e3dd2a9b5 .info-box-inner{line-height:26px;font-size:16px;color:#473d3c;}#wd-6915e437409dd .info-box-title{line-height:40px;font-size:30px;color:#473d3c;}#wd-6915e437409dd .info-box-inner{line-height:26px;font-size:16px;color:#473d3c;}#wd-68460c16bff16 .info-box-title{line-height:60px;font-size:50px;color:#473d3c;}#wd-68460c16bff16 .info-box-inner{line-height:26px;font-size:16px;color:#473d3c;}#wd-687b937e0887f .info-box-title{line-height:26px;font-size:16px;color:#473d3c;}#wd-687b937e0887f .info-box-inner{line-height:22px;font-size:12px;color:#473d3c;}#wd-687b9384e0d51 .info-box-title{line-height:26px;font-size:16px;color:#473d3c;}#wd-687b9384e0d51 .info-box-inner{line-height:22px;font-size:12px;color:#473d3c;}#wd-687b938a8f4b3 .info-box-title{line-height:26px;font-size:16px;color:#473d3c;}#wd-687b938a8f4b3 .info-box-inner{line-height:22px;font-size:12px;color:#473d3c;}#wd-68bcf7fc8516a .info-box-title{line-height:40px;font-size:30px;color:#473d3c;}#wd-68bcf7fc8516a .info-box-inner{line-height:26px;font-size:16px;color:#473d3c;}#wd-68bcfccd83cf7 .info-box-title{line-height:46px;font-size:36px;color:#473d3c;}#wd-68bcfccd83cf7 .info-box-inner{line-height:26px;font-size:16px;color:#473d3c;}@media (max-width: 1199px) {#wd-6915e3dd2a9b5 .info-box-title{line-height:34px;font-size:24px;}#wd-6915e3dd2a9b5 .info-box-inner{line-height:24px;font-size:14px;}#wd-6915e437409dd .info-box-title{line-height:34px;font-size:24px;}#wd-6915e437409dd .info-box-inner{line-height:24px;font-size:14px;}#wd-68460c16bff16 .info-box-title{line-height:50px;font-size:40px;}#wd-687b937e0887f .info-box-title{line-height:25px;font-size:15px;}#wd-687b9384e0d51 .info-box-title{line-height:25px;font-size:15px;}#wd-687b938a8f4b3 .info-box-title{line-height:25px;font-size:15px;}#wd-68bcf7fc8516a .info-box-title{line-height:34px;font-size:24px;}#wd-68bcf7fc8516a .info-box-inner{line-height:24px;font-size:14px;}#wd-68bcfccd83cf7 .info-box-title{line-height:36px;font-size:26px;}#wd-68bcfccd83cf7 .info-box-inner{line-height:24px;font-size:14px;}}@media (max-width: 767px) {#wd-6915e3dd2a9b5 .info-box-title{line-height:28px;font-size:18px;}#wd-6915e3dd2a9b5 .info-box-inner{line-height:24px;font-size:14px;}#wd-6915e437409dd .info-box-title{line-height:28px;font-size:18px;}#wd-6915e437409dd .info-box-inner{line-height:24px;font-size:14px;}#wd-68460c16bff16 .info-box-title{line-height:40px;font-size:30px;}#wd-687b937e0887f .info-box-title{line-height:24px;font-size:14px;}#wd-687b9384e0d51 .info-box-title{line-height:24px;font-size:14px;}#wd-687b938a8f4b3 .info-box-title{line-height:24px;font-size:14px;}#wd-68bcf7fc8516a .info-box-title{line-height:28px;font-size:18px;}#wd-68bcf7fc8516a .info-box-inner{line-height:24px;font-size:14px;}#wd-68bcfccd83cf7 .info-box-title{line-height:28px;font-size:18px;}#wd-68bcfccd83cf7 .info-box-inner{line-height:24px;font-size:14px;}}<\/style><div class=\"wpb-content-wrapper\">[vc_row][vc_column]\t\t\t<div class=\"info-box-wrapper\">\n\t\t\t\t<div id=\"wd-6915e3dd2a9b5\" class=\" wd-rs-6915e3dd2a9b5 wd-info-box wd-wpb text-center box-icon-align-top box-style- color-scheme- wd-bg-none border-btm-title kb \">\n\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-content\">\n\t\t\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-inner reset-last-child\"><p style=\"text-align: center;\"><em>Jason Watson, CPA, is a Partner and the CEO of <strong>WCG CPAs &amp; Advisors<\/strong>, a boutique yet progressive tax, accounting and business consultation firm located in Colorado serving small business owners and taxpayers worldwide.<\/em><\/p>\n<div style=\"display: flex; justify-content: center;\"><a href=\"https:\/\/www.linkedin.com\/in\/jason-watson-cpa\/\"><img decoding=\"async\" class=\"alignnone wp-image-17327 entered lazyloaded\" style=\"height: 35px!important; width: auto!important;\" src=\"https:\/\/wcginc.com\/wp-content\/uploads\/linkedin-150x150-1.png.webp\" alt=\"Jason Watson CPA LinkedIn\" \/><\/a>\u00a0\u00a0\u00a0\u00a0\u00a0<a href=\"mailto:jason@wcginc.com\"><img decoding=\"async\" class=\"alignnone size-thumbnail wp-image-17334 entered lazyloaded\" style=\"height: 35px!important; width: auto!important;\" src=\"https:\/\/wcginc.com\/wp-content\/uploads\/mail-150x150-1.png.webp\" alt=\"Jason Watson CPA Email\" \/><\/a><\/div>\n<\/div>\n\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\n\t\t\t\t\t<style><\/style>\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t\t\t<div class=\"info-box-wrapper\">\n\t\t\t\t<div id=\"wd-6915e437409dd\" class=\" wd-rs-6915e437409dd wd-info-box wd-wpb text-left box-icon-align-top box-style- color-scheme- wd-bg-none border-btm-title img-right kb \">\n\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-content\">\n\t\t\t\t\t\t<h2 class=\"info-box-title title wd-font-weight-800 box-title-style-default font-primary wd-fontsize-m\"><span class=\"ez-toc-section\" id=\"Taxpayers_Comprehensive_Guide_to_LLCs_and_S_Corps_2025_Edition\"><\/span>Taxpayer\u2019s Comprehensive Guide to LLCs and S Corps 2025 Edition<span class=\"ez-toc-section-end\"><\/span><\/h2>\t\t\t\t\t\t<div class=\"info-box-inner reset-last-child\"><p><img decoding=\"async\" class=\"size-full wp-image-31529 alignnone\" src=\"https:\/\/wcginc.com\/wp-content\/uploads\/LLC-S-Corp-Web-and-Social-GFX_275-250x300-1.webp\" alt=\"Taxpayer\u2019s Comprehensive Guide to LLCs and S Corps 2025 Edition\" width=\"250\" height=\"300\" \/>This KB article is an excerpt from our 420+ page book (some picture pages, but no scatch and sniff) which is available in paperback from\u00a0<a href=\"https:\/\/www.wcginc.com\/amazon\" target=\"_blank\" rel=\"noopener\">Amazon<\/a>, as an eBook for\u00a0<a href=\"https:\/\/www.wcginc.com\/kindle\" target=\"_blank\" rel=\"noopener\">Kindle<\/a>\u00a0and as a\u00a0<a href=\"https:\/\/www.wcginc.com\/pdf\" target=\"_blank\" rel=\"noopener\">PDF<\/a>\u00a0from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles online, click on the fancy buttons below or\u00a0<a href=\"https:\/\/wcginc.com\/business-services\/book\/\" target=\"_blank\" rel=\"noopener\">visit our webpage<\/a>\u00a0which provides more information.<\/p>\n<table class=\"purchase-table\">\n<tbody>\n<tr>\n<td style=\"text-align: center;\"><a href=\"\/amazon\" target=\"_blank\" rel=\"noopener\"><img decoding=\"async\" class=\"alignnone size-full wp-image-6657 aligncenter\" style=\"float: none;\" src=\"https:\/\/wcginc.com\/wp-content\/uploads\/amazon-imageresized.png.webp\" alt=\"LLCs and S Corp Book Amazon\" width=\"50\" height=\"50\" \/><\/a><\/td>\n<td style=\"text-align: center;\"><a href=\"\/kindle\" target=\"_blank\" rel=\"noopener\"><img decoding=\"async\" class=\"alignnone size-full wp-image-6658\" style=\"float: none;\" src=\"https:\/\/wcginc.com\/wp-content\/uploads\/kindle-imageresized.png.webp\" alt=\"LLCs and S Corp Book Kindle\" width=\"50\" height=\"50\" \/><\/a><\/td>\n<td style=\"text-align: center;\"><a href=\"\/pdf\" target=\"_blank\" rel=\"noopener\"><img decoding=\"async\" class=\"alignnone size-full wp-image-6659 aligncenter\" style=\"float: none;\" src=\"https:\/\/wcginc.com\/wp-content\/uploads\/PDFresized.png.webp\" alt=\"LLCs and S Corp Book PDF\" width=\"50\" height=\"50\" \/><\/a><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\"><strong>$49.95<\/strong><\/td>\n<td style=\"text-align: center;\"><strong>$39.95<\/strong><\/td>\n<td style=\"text-align: center;\"><strong>$29.95<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\n\t\t\t\t\t<style><\/style>\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t[\/vc_column][\/vc_row][vc_row equal_height=\"yes\" content_placement=\"top\" el_id=\"consultation-secc\" woodmart_css_id=\"6756f7d427735\" responsive_spacing=\"eyJwYXJhbV90eXBlIjoid29vZG1hcnRfcmVzcG9uc2l2ZV9zcGFjaW5nIiwic2VsZWN0b3JfaWQiOiI2NzU2ZjdkNDI3NzM1Iiwic2hvcnRjb2RlIjoidmNfcm93IiwiZGF0YSI6eyJ0YWJsZXQiOnt9LCJtb2JpbGUiOnt9fX0=\" mobile_bg_img_hidden=\"no\" tablet_bg_img_hidden=\"no\" woodmart_parallax=\"0\" woodmart_gradient_switch=\"no\" woodmart_box_shadow=\"no\" wd_z_index=\"no\" woodmart_disable_overflow=\"0\" row_reverse_mobile=\"0\" row_reverse_tablet=\"0\" el_class=\"kb-consult\"][vc_column]\t\t\t<div class=\"info-box-wrapper\">\n\t\t\t\t<div id=\"wd-68460c2ba6365\" class=\" wd-rs-68460c2ba6365 wd-info-box wd-wpb text-left box-icon-align-top box-style- color-scheme- wd-bg-none border-btm-title kb-fix \">\n\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-content\">\n\t\t\t\t\t\t<h2 class=\"info-box-title title box-title-style-default wd-fontsize-m\"><span class=\"ez-toc-section\" id=\"Talk_to_a_Small_Business_CPA_About_Your_Situation\"><\/span>Talk to a Small Business CPA About Your Situation<span class=\"ez-toc-section-end\"><\/span><\/h2>\t\t\t\t\t\t<div class=\"info-box-inner reset-last-child\"><p>Please use the form below to tell us a little about yourself, and what you have going on with your small business or 1099 contractor gig. <strong>WCG CPAs &amp; Advisors<\/strong> are small business CPAs, tax professionals and consultants, and we look forward to talking to you!<\/p>\n<\/div>\n\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t[vc_row_inner el_id=\"consultation-inner\" woodmart_css_id=\"66fd6caf92fc0\" responsive_spacing=\"eyJwYXJhbV90eXBlIjoid29vZG1hcnRfcmVzcG9uc2l2ZV9zcGFjaW5nIiwic2VsZWN0b3JfaWQiOiI2NmZkNmNhZjkyZmMwIiwic2hvcnRjb2RlIjoidmNfcm93X2lubmVyIiwiZGF0YSI6eyJ0YWJsZXQiOnt9LCJtb2JpbGUiOnt9fX0=\" mobile_bg_img_hidden=\"no\" tablet_bg_img_hidden=\"no\" woodmart_parallax=\"0\" woodmart_gradient_switch=\"no\" woodmart_box_shadow=\"no\" wd_z_index=\"no\" woodmart_disable_overflow=\"0\" row_reverse_mobile=\"0\" row_reverse_tablet=\"0\"][vc_column_inner][vc_raw_js el_class=\"defaultBot\"]JTNDc2NyaXB0JTIwdHlwZSUzRCUyMnRleHQlMkZqYXZhc2NyaXB0JTIyJTIwc3JjJTNEJTIyaHR0cHMlM0ElMkYlMkZ3Y2dpbmMuam90Zm9ybS5jb20lMkZqc2Zvcm0lMkYyNTE2NjQ4Nzk0MTQ5NzMlMjIlM0UlM0MlMkZzY3JpcHQlM0U=[\/vc_raw_js][\/vc_column_inner][\/vc_row_inner]\t\t\t<div class=\"info-box-wrapper\">\n\t\t\t\t<div id=\"wd-68460c16bff16\" class=\" wd-rs-68460c16bff16 wd-info-box wd-wpb text-left box-icon-align-top box-style- color-scheme- wd-bg-none border-btm-title defaultBot \">\n\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-content\">\n\t\t\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-inner reset-last-child\"><p>The tax advisors, business consultants and rental property experts at <strong>WCG CPAs &amp; Advisors<\/strong> are not salespeople; we are not putting lipstick on a pig expecting you to love it. Our job remains being professionally detached, giving you information and letting you decide within our ethical guidelines and your risk profiles.<\/p>\n<p>We see far too many crazy schemes and half-baked ideas from attorneys and wealth managers. In some cases, they are good ideas. In most cases, all the entities, layering and mixed ownership is only the illusion of precision. As Chris Rock says, just because you can drive your car with your feet doesn\u2019t make it a good idea. In other words, let\u2019s not automatically convert \u201cyou can\u201d into \u201cyou must.\u201d<\/p>\n<p><strong>Let\u2019s chat so you can be smart about it.<\/strong><\/p>\n<p>We typically schedule a 20-minute complimentary quick chat with one of our Partners or our amazing Senior Tax Professionals to determine if we are a good fit for each other, and how an engagement with our team looks. Tax returns only? Business advisory? Tax strategy and planning? Rental property support?<\/p>\n<\/div>\n\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\n\t\t\t\t\t<style><\/style>\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t[vc_row_inner equal_height=\"yes\" el_class=\"boxes--pack\" woodmart_css_id=\"673b5f334f247\" responsive_spacing=\"eyJwYXJhbV90eXBlIjoid29vZG1hcnRfcmVzcG9uc2l2ZV9zcGFjaW5nIiwic2VsZWN0b3JfaWQiOiI2NzNiNWYzMzRmMjQ3Iiwic2hvcnRjb2RlIjoidmNfcm93X2lubmVyIiwiZGF0YSI6eyJ0YWJsZXQiOnt9LCJtb2JpbGUiOnt9fX0=\" mobile_bg_img_hidden=\"no\" tablet_bg_img_hidden=\"no\" woodmart_parallax=\"0\" woodmart_gradient_switch=\"no\" woodmart_box_shadow=\"no\" wd_z_index=\"no\" woodmart_disable_overflow=\"0\" row_reverse_mobile=\"0\" row_reverse_tablet=\"0\"][vc_column_inner width=\"1\/3\"]\t\t\t<div class=\"info-box-wrapper\">\n\t\t\t\t<div id=\"wd-687b937e0887f\" class=\" wd-rs-687b937e0887f wd-info-box wd-wpb text-left box-icon-align-top box-style- color-scheme- wd-bg-none business-boxes \">\n\t\t\t\t\t\t\t\t\t\t\t<div class=\"box-icon-wrapper  box-with-icon box-icon-simple\">\n\t\t\t\t\t\t\t<div class=\"info-box-icon\">\n\n\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img decoding=\"async\" width=\"622\" height=\"622\" src=\"https:\/\/wcginc.com\/wp-content\/uploads\/Text-WCG-Offices-1.jpg\" class=\"attachment-full size-full\" alt=\"Text WCG Offices\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-content\">\n\t\t\t\t\t\t<h4 class=\"info-box-title title wd-font-weight-600 box-title-style-default font-primary wd-fontsize-m\">Text WCG Offices<\/h4>\t\t\t\t\t\t<div class=\"info-box-inner reset-last-child\"><p>Need to get in touch through a quick text?\u00a0 We\u2019ll respond back within a day and get going!<\/p>\n<\/div>\n\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t\t\t<a class=\"wd-info-box-link wd-fill\" aria-label=\"Infobox link\" href=\"sms:+17193452100?&amp;body=Hey%20WCG!%20Please%20call%20me%20to%20discuss%20your%20CPA%20services\" title=\"\"><\/a>\n\t\t\t\t\t\n\t\t\t\t\t<style><\/style>\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t[\/vc_column_inner][vc_column_inner width=\"1\/3\"]\t\t\t<div class=\"info-box-wrapper\">\n\t\t\t\t<div id=\"wd-687b9384e0d51\" class=\" wd-rs-687b9384e0d51 wd-info-box wd-wpb text-left box-icon-align-top box-style- color-scheme- wd-bg-none business-boxes \">\n\t\t\t\t\t\t\t\t\t\t\t<div class=\"box-icon-wrapper  box-with-icon box-icon-simple\">\n\t\t\t\t\t\t\t<div class=\"info-box-icon\">\n\n\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img decoding=\"async\" width=\"622\" height=\"622\" src=\"https:\/\/wcginc.com\/wp-content\/uploads\/Chat-Our-Amazing-Team-1.jpg\" class=\"attachment-full size-full\" alt=\"Chat our amazing team\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-content\">\n\t\t\t\t\t\t<h4 class=\"info-box-title title wd-font-weight-600 box-title-style-default font-primary wd-fontsize-m\">Call Our Amazing Team<\/h4>\t\t\t\t\t\t<div class=\"info-box-inner reset-last-child\"><p class=\" \">If you need to speak to a tax professional now, give us a call and we'll get you connected.<\/p>\n<\/div>\n\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t\t\t<a class=\"wd-info-box-link wd-fill\" aria-label=\"Infobox link\" href=\"tel:719-387-9800\" title=\"\"><\/a>\n\t\t\t\t\t\n\t\t\t\t\t<style><\/style>\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t[\/vc_column_inner][vc_column_inner width=\"1\/3\"]\t\t\t<div class=\"info-box-wrapper\">\n\t\t\t\t<div id=\"wd-687b938a8f4b3\" class=\" wd-rs-687b938a8f4b3 wd-info-box wd-wpb text-left box-icon-align-top box-style- color-scheme- wd-bg-none business-boxes nav-button-chat \">\n\t\t\t\t\t\t\t\t\t\t\t<div class=\"box-icon-wrapper  box-with-icon box-icon-simple\">\n\t\t\t\t\t\t\t<div class=\"info-box-icon\">\n\n\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img decoding=\"async\" width=\"622\" height=\"622\" src=\"https:\/\/wcginc.com\/wp-content\/uploads\/Chat-With-a-Tax-Pro-2.jpg\" class=\"attachment-full size-full\" alt=\"Chat with a tax pro\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-content\">\n\t\t\t\t\t\t<h4 class=\"info-box-title title wd-font-weight-600 box-title-style-default font-primary wd-fontsize-m\">Chat With a Tax Pro<\/h4>\t\t\t\t\t\t<div class=\"info-box-inner reset-last-child\"><p>Taxes can be tricky. Chat with a WCG human now and get questions answered.<\/p>\n<\/div>\n\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\n\t\t\t\t\t<style><\/style>\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t[\/vc_column_inner][\/vc_row_inner][\/vc_column][\/vc_row][vc_row equal_height=\"yes\" content_placement=\"top\" woodmart_css_id=\"684abef7ecaa9\" responsive_spacing=\"eyJwYXJhbV90eXBlIjoid29vZG1hcnRfcmVzcG9uc2l2ZV9zcGFjaW5nIiwic2VsZWN0b3JfaWQiOiI2ODRhYmVmN2VjYWE5Iiwic2hvcnRjb2RlIjoidmNfcm93IiwiZGF0YSI6eyJ0YWJsZXQiOnt9LCJtb2JpbGUiOnt9fX0=\" mobile_bg_img_hidden=\"no\" tablet_bg_img_hidden=\"no\" woodmart_parallax=\"0\" woodmart_gradient_switch=\"no\" woodmart_box_shadow=\"no\" wd_z_index=\"no\" woodmart_disable_overflow=\"0\" row_reverse_mobile=\"0\" row_reverse_tablet=\"0\" el_class=\"kb-consult\"][vc_column]\t\t\t<div class=\"info-box-wrapper\">\n\t\t\t\t<div id=\"wd-68bcf7fc8516a\" class=\" wd-rs-68bcf7fc8516a wd-info-box wd-wpb text-left box-icon-align-top box-style- color-scheme- wd-bg-none border-btm-title \">\n\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-content\">\n\t\t\t\t\t\t<h2 class=\"info-box-title title wd-font-weight-600 box-title-style-default font-primary wd-fontsize-m\"><span class=\"ez-toc-section\" id=\"Schedule_Discovery_Meeting_Now\"><\/span>Schedule Discovery Meeting Now<span class=\"ez-toc-section-end\"><\/span><\/h2>\t\t\t\t\t\t<div class=\"info-box-inner reset-last-child\"><\/div>\n\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\n\t\t\t\t\t<style><\/style>\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t[vc_row_inner content_placement=\"middle\" el_class=\"client-review-secs box--card\" woodmart_css_id=\"672e712482714\" responsive_spacing=\"eyJwYXJhbV90eXBlIjoid29vZG1hcnRfcmVzcG9uc2l2ZV9zcGFjaW5nIiwic2VsZWN0b3JfaWQiOiI2NzJlNzEyNDgyNzE0Iiwic2hvcnRjb2RlIjoidmNfcm93X2lubmVyIiwiZGF0YSI6eyJ0YWJsZXQiOnt9LCJtb2JpbGUiOnt9fX0=\" mobile_bg_img_hidden=\"no\" tablet_bg_img_hidden=\"no\" woodmart_parallax=\"0\" woodmart_gradient_switch=\"no\" woodmart_box_shadow=\"no\" wd_z_index=\"no\" woodmart_disable_overflow=\"0\" row_reverse_mobile=\"0\" row_reverse_tablet=\"0\"][vc_column_inner width=\"1\/3\" woodmart_css_id=\"671780b35b49a\" parallax_scroll=\"no\" woodmart_sticky_column=\"false\" wd_collapsible_content_switcher=\"no\" wd_column_role_offcanvas_desktop=\"no\" wd_column_role_offcanvas_tablet=\"no\" wd_column_role_offcanvas_mobile=\"no\" wd_column_role_content_desktop=\"no\" wd_column_role_content_tablet=\"no\" wd_column_role_content_mobile=\"no\" mobile_bg_img_hidden=\"no\" tablet_bg_img_hidden=\"no\" woodmart_parallax=\"0\" woodmart_box_shadow=\"no\" responsive_spacing=\"eyJwYXJhbV90eXBlIjoid29vZG1hcnRfcmVzcG9uc2l2ZV9zcGFjaW5nIiwic2VsZWN0b3JfaWQiOiI2NzE3ODBiMzViNDlhIiwic2hvcnRjb2RlIjoidmNfY29sdW1uX2lubmVyIiwiZGF0YSI6eyJ0YWJsZXQiOnt9LCJtb2JpbGUiOnt9fX0=\" wd_z_index=\"no\"]\t\t<div id=\"wd-68874e76cd7bc\" class=\"wd-image wd-wpb wd-rs-68874e76cd7bc text-left \">\n\t\t\t\n\t\t\t<img decoding=\"async\" width=\"300\" height=\"200\" src=\"https:\/\/wcginc.com\/wp-content\/uploads\/265518_2057667071_tax_consultation_300-1.webp\" class=\"attachment-full size-full\" alt=\"Request a Meeting with WCG Inc\" \/>\n\t\t\t\t\t<\/div>\n\t\t[\/vc_column_inner][vc_column_inner width=\"2\/3\" woodmart_css_id=\"671780c0415fb\" parallax_scroll=\"no\" woodmart_sticky_column=\"false\" wd_collapsible_content_switcher=\"no\" wd_column_role_offcanvas_desktop=\"no\" wd_column_role_offcanvas_tablet=\"no\" wd_column_role_offcanvas_mobile=\"no\" wd_column_role_content_desktop=\"no\" wd_column_role_content_tablet=\"no\" wd_column_role_content_mobile=\"no\" mobile_bg_img_hidden=\"no\" tablet_bg_img_hidden=\"no\" woodmart_parallax=\"0\" woodmart_box_shadow=\"no\" responsive_spacing=\"eyJwYXJhbV90eXBlIjoid29vZG1hcnRfcmVzcG9uc2l2ZV9zcGFjaW5nIiwic2VsZWN0b3JfaWQiOiI2NzE3ODBjMDQxNWZiIiwic2hvcnRjb2RlIjoidmNfY29sdW1uX2lubmVyIiwiZGF0YSI6eyJ0YWJsZXQiOnt9LCJtb2JpbGUiOnt9fX0=\" wd_z_index=\"no\"]\t\t\t<div class=\"info-box-wrapper\">\n\t\t\t\t<div id=\"wd-68bcfccd83cf7\" class=\" wd-rs-68bcfccd83cf7 wd-info-box wd-wpb text-left box-icon-align-top box-style- color-scheme- wd-bg-none with-btn box-btn-static \">\n\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-content\">\n\t\t\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-inner reset-last-child\"><p>Ready to schedule now and talk about S Corp and reasonable salary and all that gibberish? Let's do it! Here is a link to a Discovery Meeting with one of our Partners or Senior Tax Professionals to understand your tax footprint and objectives, and how <strong>WCG CPAs &amp; Advisors<\/strong> might help.<\/p>\n<\/div>\n\n\t\t\t\t\t\t<div class=\"info-btn-wrapper\"><div id=\"wd-6a31bb6f722bf\" class=\"  wd-button-wrapper text-left\"><a href=\"https:\/\/calendly.com\/wcg-cpas-advisors\/discovery-meeting-instant\" title=\"\" target=\"_blank\" class=\"btn btn-style-default btn-shape-rectangle btn-size-default\">Schedule Meeting<\/a><\/div><\/div>\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\n\t\t\t\t\t<style><\/style>\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t[\/vc_column_inner][\/vc_row_inner][\/vc_column][\/vc_row]<\/div>[\/vc_column_text][\/vc_column][\/vc_row]<\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>You, or someone you know, might have had a job where the company-match to your 401k was vested over time or the business had a restricted stock grant that only triggered after so many years of service. For most of our readers this concern is moot [&#8230;]<\/p>\n","protected":false},"author":6,"featured_media":31363,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_acf_changed":false,"footnotes":""},"epkb_post_type_1_category":[78],"epkb_post_type_1_tag":[],"class_list":["post-14048","epkb_post_type_1","type-epkb_post_type_1","status-publish","has-post-thumbnail","hentry","epkb_post_type_1_category-chap-4-the-185-reasons-to-not-have-an-s-corp-or-llc"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.8 (Yoast SEO v27.8) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Vesting and Expanding Ownership - S Corp Ownership - WCG CPAs &amp; Advisors<\/title>\n<meta name=\"description\" content=\"If you sell 10% of your S Corp to a key employee, you suddenly create headaches. 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