Multi member SCorp pays one of it's member's companies for services as a subcontractor. The company receiving payment is organized as a Sole Prop Sch C Filer. The SCorp would issue a 1099 to that shareholders SSN. Additionally, the shareholders will all receive W2s for other work completed and distributions as profits allow. Are there any issues here?

I am aware members of an SCorp should be paid as employees when performing services for the SCorp. My question is can you have both?

The SCorp members are not looking at it as if this particular work is being performed in the typical administrative capacity that the member has served in the past. In reality the member did none of the actual work the employees of his Sole Prop company did the work for the SCorp. I could not see the paying of wages and dealing with the associated payroll taxes in this case appropriate as there would of been materials and other expenses associated with the work that was done.

Think General Contractor for the SCorp and specialty construction contractor (i.e. Electrician) for the Sole Prop owned company. SCorp General Contractor has hired one of it's shareholders companies to perform work on one of their projects.

Perhaps I'm looking for issues where they are none and this is correct treatment, I am just trying to be certain that this is an acceptable arrangement.

Thank you in advance for any thoughts on this.