What is an S corp - Overview, Taxes and How To File

To attain an S Corp status, a business must:

• Be incorporated in the United States. 
• Have no more than 100 shareholders. 
• Issues only one class stock and 
• Have shareholders who are individuals, certain estates and trusts, or a qualifying tax-exempt organization.

Similar to a C corp and S corp, they also adhere to corporate formalities such as:

• Having a board of directors. 
• Formulating the corporate bylaws
• Holding shareholder and director meetings, 
• Maintaining the minutes of the meeting and issuing formal stock. 

Some major challenges of an S Corporation include:

• There are strict restrictions on the category and the number of shareholders. 
• S corporations must fulfill the requirement to pay shareholders and employees a reasonable salary before distributing profits. 
• The S corporation has an administrative burden of maintaining the corporate formalities. 
• S Corporations also face the risk of IRS scrutiny if they have misreported the salary vs profit distribution.