| S Corporation is an elective provision that permits small | | | | couple is counted as one shareholder. The |
| business corporations and their shareholders to elect | | | | shareholders of an S corporation must be individuals, |
| special income tax treatment. To become S | | | | certain estates or trusts. All stockholders must consent |
| Corporation or Small Business Corporation, the IRS has | | | | to the S corporation structure formation. Each |
| several special requirements. | | | | shareholder must be a citizen or resident of the United |
| The corporation must timely file IRS Form 2553 with | | | | States. The S corporation can have only one class of |
| the IRS. This election must be made by March 15 of | | | | stock. However, voting and nonvoting shares are not |
| the current year, if the corporation is a calendar-year | | | | considered to be two separate classes. Preferred |
| taxpayer. The election will then take effect for the | | | | stock is not allowed. Debt is not considered a second |
| current tax year. A new corporation must make the S | | | | class of stock unless it is classified as equity. There |
| election within 75 days of formation; otherwise, it will be | | | | are 3 requirements for debt to be acceptable for |
| a C corporation for the first year and an S corporation | | | | subchapter S election - its interest is not tied to profits, |
| thereafter. | | | | the debt is not convertible and the creditor must be an |
| The S corporation must not have more than 75 | | | | individual. |
| shareholders. Before 1997, the limit was 35. A married | | | | |