Working on a Corporate income tax return & trying to figure out one transaction.
- Two friends started a corporation - later realized the difference of business vision
- Both are directors in articles (currently being amended). No other legal documents were created (e.g. certificate and consent to act as an officer, consent to act as a director, issuance of shares, subscription, etc.)
- Director B decided he wanted to leave and asked for compensation
$8,000 paid to director B via corporate funds & director B signed:
Two legal documents were produced and signed by Director B and a witness:
To: The Corp - Releasee
From: Director B Releasor
To: The corp
RE: Amount payable to Director B
Generally, when a director / shareholder withdraws money from a corporation the entry is straight forward:
DT Shareholder Loan / Due from Director $8,000
CT Cash $8,000
(funds director A took out & used to pay director B off)
However, legal documents are between director B and the corporation - not - director A & director B
Can it be said that the transaction is between Director A and Director B because Director A is now the sole director?
Has any dealt with something similar or have any input?