removing the other shareholder removes his basis from the computations . nothing on the balance sheet changes since you purchased the shares from other s/h. your (outside) basis increases by the amount you paid but it is not reflected in the return. you have inside basis ($ actually put into the corp) and outside basis (what you paid the other s/h) . yes you can contribute money to corp to increase basis. if the corporation repurchases your stock your basis goes down and under certain conditions you might even have a taxable gain.
