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Colbert were working for a nuts and bolts distributor, Industrial
Products Co., when they decided to start their own business.
They brought in Allen to make outside sales. Allen was
president, Grecco was vice president, and Colbert was
secretary/treasurer of petitioner. They were also petitioner's
directors.
Grecco, Colbert, and Allen each owned 50 shares of
petitioner's stock. They each invested $10,000 in petitioner,
consisting of $5,000 for the stock and a $5,000 loan. Petitioner
later repaid the loans. Petitioner also borrowed $40,000.
Grecco, Colbert, and Allen did not invest additional funds in
petitioner.
Petitioner has been profitable since its beginning. Grecco,
Colbert, and Allen asked customers of their earlier businesses to
switch to petitioner. Grecco and Colbert brought customers to
petitioner. For example, Grecco brought Brod & McClung, which
Grecco had supplied at other nuts and bolts distributors for
which she worked. Grecco was petitioner's principal contact with
suppliers.
At first, petitioner's only employees were Grecco, Colbert,
and Allen. Petitioner hired another employee about a year after
it began to operate.
In 1982 and 1983, Allen redeemed his 50 shares of
petitioner's stock, and Ron Tiedemann (Tiedemann) bought 50
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