fbpx
MENU

S Corporations

A. Basic Requirements. A corporation is eligible to elect and maintain S status only if it qualifies as a small business corporation.  For purposes of Subchapter S, a small business corporation:

  1. is a domestic corporation;
  2. has no more than 75 shareholders;
  3. has no shareholders other than:
    1. individuals who are citizens or residents of the United States,
    2. estates, or
    3. certain types of trusts (grantor trusts, voting trusts, testamentary trusts for up to 60 days, and qualified Subchapter S trusts);
  4. has only one class of stock; and
  5. is not an ineligible corporation.

B. Number of Shareholders.

  1. An S corporation must not have more than 75 shareholders.  A husband and wife (and their estates), each owning stock individually, are treated as one shareholder.  If they divorce, they are converted into two shareholders.  If stock is held jointly by nonspouses, each joint owner is counted as a separate shareholder.
    1. The 75-shareholder limit may not be circumvented by forming multiple S corporations.  The IRS has ruled adversely when, solely to avoid the 75-shareholder limit, a large group of individuals formed three separate S corporations (each having fewer than the maximum number of shareholders), which then formed a partnership for the operation of a single business.  For purposes of S eligibility, the three corporations were considered as one; therefore, the shareholder limit was exceeded.

To read the rest of this article, click here to download a PDF copy.

RECENT ARTICLES

Qualified Opportunity Zone Investments: Distribution Waterfalls

The Qualified Opportunity Zone program was enacted through the Tax Cuts and Jobs Act of 2017.  The Department of Treasury has ...

Eversheds Sheds Light on Swart Decision

In what is likely to be ultimately released as a precedential decision, the Office of Tax Appeals in a 3-to-0 ...

UPCOMING EVENTS

November, 7 2019 – Building Opportunity Conference

Moss Adams is holding their annual Building Opportunity Conference in Sacramento on Thursday November 7, 2019. WKBKY Attorney Matt Carlson will be ...
green and yellow boxes

CHOOSE A LEGAL PARTNER THAT'S COMMITTED TO YOUR SUCCESS.

To find out how we can help you through the complexities of today’s legal issues, call (916) 920-5286 or click below.