Are sub-S corporations required to distribute all net income to stockholders or canit reinvest it to finance growth?

Are sub-S corporations required to distribute all net income to stockholders or canit reinvest it to finance growth?

We have a subchapter-S corporation. Each year we distribute enough of our net income to cover stockholder’s taxes at the maximum taxable rate. The rest is reinvested in the business to finance the company’s growth. One minority stockholder (19%) is complaining that we do not distribute all our net income. He believes that what we are doing is some how “fraudulent”. Is he crazy or correct?

Asked on March 5, 2012 under Business Law, Ohio

Answers:

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