S-Corporation

Generally, a S-Corporation must have a maximum of seventy-five(75) shareholders who are individuals. Upon Subchapter "S" election to be an "S" Corporation, it's corporate profits and losses are passed through the corporation to the individual shareholders of the "S" Corporation. These profits and losses are reported on the individual shareholders annual tax filings. This is the same basic "pass-through" treatment realized by partnerships and Limited Liability Companies. The key difference in the S-Corporation and the C-Corporation is that the profits and losses of the S-Corporation are not reported at the corporate level as they are in a C-Corporation but rather at the individual shareholder level.

A. Corporate Requirements

S-Corporations follow the same state requirements as a C-Corporation. However, an S-Corporation has a special tax election under sub-chapter S of the Internal Revenue Code by filing IRS Form 2553. The S-Corporation must complete and file IRS Form 1120 each year to report it's annual profits or losses to the IRS.

B. Corporate Shareholder Requirements

A maximum of seventy-five(75) shareholders is allowed under a S-Corporation. Shareholders of the S-Corporation must be U.S. Citizens or have U.S. Residency. The transfer or sale of shares of a S-Corporation, if by will, divorce or other means, will result in the loss of the subchapter S status and the imposition of the C-Corporation status. Upon the loss of the subchapter S status, a Corporation may not re-apply for this status for a minimum of five(5) years.

C. Stock Requirements

S-Corporations may have only one class of stock.

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