Question

Explain the details of an "S" Corporation.

Answer 1

Corporation is nothing but an entity which has the authority to act as a single person different from its shareholders who are the owners of the business.

S-corporation is the corporation where the tax is levied on the income made by the shareholders rather than the corporation. Under the Internal Revenue Code, the corporations with limited number of shareholders can opt S-corporation tax status. S-corporation can have different voting rights for different share but cannot have multiple classes. This means they can issue voting and non-voting common stocks but cannot have two classes of shares.

The restrictions imposed on S-corporation by IRS include: -

• It cannot have more than 100 shareholders.
• All shareholders must be individual and legal resident of United States.