An S corporation combines the limited liability protection of C corporations with the taxation benefits of a sole proprietorship, partnership or LLC. Some states, such as New York and New Jersey, do not recognize S corporation status and treat them like a C corporation. To learn about different business structures, check out our video series on choosing the right business entity for you.
A corporation must meet all of the following requirements to be eligible for IRS S corporation election:
- Must only have one class of stock.
- Must not have more than 100 shareholders.
- All of the shareholders must be U.S. citizens or U.S. permanent residents.
- All of the shareholders must be natural persons (i.e. other corporations, LLCs and partnerships are generally excluded).
- Profits and losses must be allocated to shareholders proportionately to their ownership interests.
Check out the video below for a quick overview of S corporations, and continue reading for more info.