There are certain requirements for an American corporation
as an S corporation. First, the business must be a closed
corporation with 75 or fewer shareholders
. All the shareholders must be US citizens
or resident aliens
. Only individuals, estates
, certain trusts, and, under certain circumstances, corporations can be shareholders in an S corporation. An S corporation only issues on class
- One advantage of forming an S corporation is that when the corporation has losses, the shareholders can use these losses to offset other income, so their taxes will be lower.
- Secondly, under the S Corporation tax election the business is only taxed once. This is an important benefit if the corporation wants to retain a greater portion of its income for future growth.
- The disadvantages of an S corporation are that there are specific requirements that need to be met in order to qualify as an S corporation. It must be a domestic corporation, and there is a cap as to how many shareholders the corporation may have.
- Foreign investors are not able to become shareholders in the S corporations. This is disadvantageous since globalization has become an important trend in the world of business.
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