When a single owner s-corp brings in a new shareholder and there wasn't enough cash available to distribute previously taxed income, can the original owner continue taking distributions throughout the year or do the distributions need to be proportionate from the point of ownership change?
I would guess that once the ownership changes, any distributions need to be pro-rata. If a person bought stock in a publicly traded company, and the company hadn't bothered paying dividends for years (like Microsoft), and then shortly after the person bought stock (and someone else had sold stock), dividends came flowing like wine -- it's the new owner who reaps the benefit of being a stockholder at the right time and getting the dividends -- not the old owner.
As with all corporations, distributions are declared by the board of directors. The declaration is made by specifying a "record" date, as well as a pay date and a dollar amount per share. The record date specifies the date at which ownership of the shares is counted for elibibility to receive the distribution. If record date at declaration is specified as the day prior to admission of the new shareholder, the distribution can be made to the original shareholder only. Be sure to hold and document a proper Board of Directors meeting.
