Types of Entities

Good to Know:

An S Corporation avoids the double taxation inherent to general business corporations, in which both profits and dividends are taxed.

Need to Know:

Certain requirements must be met before qualifying, so we strongly recommend consulting tax and legal advisors before electing S Corporation status.

• Limits on shareholders. By law, the number of eligible shareholders is limited to 100. Only individuals and certain trusts and estates are allowed to own stock.
• Shareholder definition. What constitutes "one shareholder" has changed. Previously, a husband and wife qualified as "one" for S Corporation purposes. Now, the law allows "members of a family" to qualify as "one" and defines "members of a family" as the common ancestor, the lineal descendants of the common ancestor and the spouses or former spouses of the lineal descendants or common ancestor.
• Stock restrictions. S Corporations have "one class of stock" restrictions. All distributions and allocations must be the same for each share. If an S Corporation violates any of these rules, the S election is revoked.
• IRS filing. To obtain S Corporation tax status, all shareholders must sign IRS form 2553 which must be filed within 75 days of starting business. American Incorporators can assist you with this filing or prepare it for you.