Like many business owners, you may have structured your business as an S corporation because of the tax benefits it offers. An S corporation provides the same limited liability as a traditional C corporation, but it generally avoids the double taxation associated with a C corporation. You and the other shareholders (if any) pay income taxes on corporate income directly.<\/p>\n
Once you have an S election in place, it\u2019s important to make sure you avoid taking any action that would put the election in jeopardy. Your corporation\u2019s failure to meet certain tax law requirements<\/a> on an ongoing basis could result in the IRS\u2019s termination of its S corporation status.<\/p>\n An S corporation generally may not have a corporate shareholder. (Exception: An S corporation may be wholly owned by another S corporation.) All shareholders generally must be individuals, estates, certain trusts, or tax-exempt 501(c)(3) charitable organizations. However, a partnership may hold S corporation stock as a nominee for an eligible shareholder. Nonresident aliens may not be shareholders. A foreigner, non-citizen,\u00a0resident alien\u00a0may be an S shareholder, but you need to be careful because there are special qualification requirements, including\u00a0 requirements regarding physical presence in the United States.<\/p>\n An S corporation may not have more than 100 shareholders. For purposes of this limit, the IRS treats a husband and wife as one shareholder, as it treats certain other related individuals.<\/p>\n An S corporation may have only one class of stock. Generally, a corporation has only one class of stock if all outstanding shares of the corporation\u2019s stock confer identical rights to distribution and liquidation proceeds.<\/p>\n Many small business owners have troubles with this requirement, by not making distributions to owners according to the ownership percentages.<\/p>\nOwnership<\/strong><\/h3>\n
Number of Shareholders<\/strong><\/h3>\n
S Corporation Stock<\/strong><\/h3>\n