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:
100 or fewer shareholders;
only individuals, estates, qualified trusts, and/or certain tax-exempt organizations (*1) as shareholders;
no nonresident aliens as shareholders; and
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.