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S Corporation Ownership Rules

If you want to own an S Corporation, there is a need to know the ownership rules set the state or country where you live.

There are restrictions that you need to observe and strict compliance is required to push through with the registration of your corporation. Seek legal help to have a guide during startup.

S Corporation Ownership Rules

In the US, you can find various business structures and this includes the sole proprietorship, partnership, and corporation. If you’re interested to start a corporation, you should be aware that there are currently two prevailing types – S and C. The S stands for small business corporations and if you’re interested focus in this structure, you have to check with the IRS (Internal Revenue Service) to determine the restrictions. You see, not everyone can own stocks in the S Corporation. Here are some S Corporation ownership rules that you should know.

Nonresident aliens can’t own stocks, as well as LLCs. If you’re an owner of an S Corporation, you can’t own stocks with similar establishments but you can own 100% of your stocks. Certain trusts are also restricted, especially the ones that don’t exist in perpetuity. These are the rules for ownership. You should make sure that you are not disqualified in any way to avoid unnecessary paperwork and legal problems. When you’ve complied with the requirements, you can easily establish your S Corporation with the help of a competent lawyer. The rules may vary from one state or another, so there is a need to inquire prior to startup.

Shareholder Rules

As the owner of an S Corporation, there is also a need to be familiar with the allowed stockholders. The number is restricted at 100 and you should never exceed it in any way because it is a clear violation of the ownership rules. Married individuals that own stocks of a certain corporation will be treated as a single owner. This is applicable whether the individual or couple owns estates, certain trusts, and stocks from other corporations. Always maintain the stocks at 100 and you can sell some to other investors if you don’t want to own 100% of it.

Corporations are not allowed to own another S Corporation but there are also eligible individuals or shareholders like resident aliens, US citizens, married couples, charities, estates, employee stock, and trusts in perpetuity. As the owner of the corporation, you must ensure that only these people acquire your stocks. With the help of your lawyer, you can easily decide in choosing shareholders. Again, the rules set by the IRS should be observed; otherwise, you’re going to face some legal issues. If there are violations, you can’t push through with the startup. Make sure that your S Corporation is able to meet the requirements of your state or country and a thorough plan is necessary as well.

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