What are the requirements to qualify as an S corporation?

To qualify for S-Corporation status, the business must be a corporation and meet the following requirements:

• Geography – Organized in the United States.
• Citizenship – All shareholders must be US Citizens or resident aliens.
• Number of Shareholders– It cannot have more than 100 shareholders.
  • Note: All members of a family are considered to be one investor for purposes of this rule.
• Eligible Shareholders – All shareholders must be individuals, trusts, or certain other exempt organizations.
• Ownership Classes – The company may only authorize one class of stock (common stock).
• Tax Year – The company must follow an IRS accepted tax year.
• Shareholder Election – All shareholders must consent to the S-election.

It is fairly easy to run afoul of the S corporation requirements and lose the tax status. For example, a business may exceed the number of eligible shareholders, accidentally transfer an interest in the business to a business entity, or authorize what is deemed a second class of shares.

• Note: Certain banking and insurance companies are not eligible for S-corporation status.