Question

In order for a corporation to be treated as an S corporation, it must ________.

1) Have no more than 100 shareholders
2) Have only individual shareholders
3) Be a domestic corporation
4) Have only one class of stock

Answer 1

An S corporation must have no more than 100 shareholders, be a domestic corporation, and have only one class of stock. While shareholders are typically individuals, certain trusts and estates can be shareholders as well. Therefore, the correct option is 1).

Step-by-step explanation:

In order for a corporation to be treated as an S corporation, several specific criteria must be met:

• It must have no more than 100 shareholders.

• Its shareholders must be individuals, certain trusts, or estates, but cannot be partnerships, corporations, or non-resident alien shareholders.

• It must be a domestic corporation.

• It must have only one class of stock.

S corporations are distinct in that they offer the benefits of limited liability protection, as well as the advantage of passing corporate income, losses, deductions, and credits through to shareholders for federal tax purposes. The correct options in the final answer are 1) Have no more than 100 shareholders, 3) Be a domestic corporation, and 4) Have only one class of stock. Although the question also suggests that S corporations can only have individual shareholders, this is not entirely accurate; they can have certain trusts and estates as shareholders too.