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Eligibility to Elect S Corporation Status

October 8, 2021

It is important to be aware that only corporations that meet certain criteria are eligible to elect S corporation status. Therefore, here are the basic requirements for eligibility as an S corporation.

The corporation must be a domestic corporation (i.e., a corporation organized or created in the United States or under the law of the United States or of any state or territory), and have:

  1. 100 or fewer shareholders;

  2. only individuals, estates, qualified trusts, and/or certain tax-exempt organizations (*1) as shareholders;

  3. no nonresident aliens as shareholders; and

  4. only one class of stock issued & outstanding (voting or non-voting common stock are allowed but preferred stock is not allowed).

Note that there are no revenue restrictions on the type of business that can operate as an S corporation. In other words, there is no requirement a corporation must operate on a small scale in order to elect S corporation status.

An S Corporation has various characteristics (advantages vs disadvantages as summarized in the table below) that other corporate forms do not have.

*1 certain tax-exempt organizations;

  • Charitable, Churches and Religious organization, Private foundation under Internal Revenue Code Section 501(c)(3)

  • Political organization subject to Section 527

  • Other nonprofit organization, for example social welfare organizations, civic leagues, social clubs, labor organizations and business leagues.


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