Omega Investments, Inc., was formed in 1993 by 10 unrelated individual investors. It operates a chain of electronics stores. The corporation suffered losses in its early years but has become profitable in recent years.
The corporation elected S corporation status in 1993. Over the years, the original shareholders have gifted shares to their children and transferred them to trusts for their grandchildren. At the end of last year, there were 70 shareholders. Additional gifts made in the current year have increased the number of shareholders to 90.
The company needs more cash and would like to sell additional shares. Write a memo advising the investors of the tax implications of issuing additional shares of stock.