what is a shareholders loan in an s corp?
If shareholder loans are present and they are not respected as true loans, the following risks are present: 1  If the S corporation loans funds to a shareholder the loan could be re-characterized as a distribution, thereby causing distributions to be disproportionate. If a shareholder has previously loaned funds to an S corporation and such loan is re-characterized as an equity investment, payments by the corporation to the shareholder could also be re-characterized as distributions again causing such distributions to be disproportionate.