Final answer:
An S corporation is limited to a maximum of 100 shareholders, allowing it to retain tax-advantages and providing shareholders limited liability while maintaining options for financing growth.
Step-by-step explanation:
An S corporation may have no more than 100 shareholders. This limitation is in place to maintain the tax-advantaged status of an S corporation, which is to be treated as a pass-through entity for tax purposes, allowing income to be taxed at the shareholder level rather than at the corporate level.
Shareholders enjoy limited liability, which is confined to their investment in the corporation. This structure allows for a clearer and easier way to raise or borrow money and gives corporations the ability to sell stock to finance growth, although this is constrained by the shareholder number limit. Additionally, S corporations must comply with regulations such as the Sarbanes-Oxley Act, which outlines requirements for financial transparency and accountability.