Video: Shareholders of an S Corporation

In this lesson, Nick Palazzolo, CPA, breaks down the specific shareholder eligibility requirements for S-Corporations, emphasizing the need to maintain S-Corp status for federal tax purposes. He delves into the rules surrounding the maximum number of shareholders an S-Corp can have, including how family members and estates may be counted. Furthermore, Nick discusses the types of shareholders that are allowed – highlighting U.S. citizens, resident aliens, and certain trusts – while also outlining who and what entities are ineligible, such as non-resident aliens, other corporations, and partnerships. He thoroughly explains the real-world implications of these eligibility criteria, including how improper transfers of shares can result in an S-Corp reverting to a C-Corp, and stresses the importance of internal bylaws and checks to prevent unauthorized transactions.