S Corporation Restrictions

To elect S Corporation status, your corporation must meet specific guidelines.

*

All stockholders must be citizens or permanent residents of the United States.
*

The maximum number of stockholders for an S Corporation is 75.
*

If an S Corporation is held by an "electing small business trust," then all beneficiaries of the trust must be individuals, estates or charitable organizations. Interests in the trust cannot be purchased.
*

S Corporations may only issue one class of stock.
*

No more than 25 percent of the gross corporate income may be derived from passive income.

Not all domestic general business corporations are eligible for S Corporation Status.

Exclusions:

*

a financial institution that is a bank
*

an insurance company taxed under Subchapter L
*

a Domestic International Sales Corporation (DISC)
*

certain affiliated groups of corporations