What is a key eligibility requirement for S-Corporations?

A key eligibility requirement for S-Corporations is that they must have no more than 100 shareholders. This restriction helps to maintain the entity's status as a small business corporation, which can be beneficial for tax purposes. The limitation on the number of shareholders ensures that S-Corporations are typically owned and operated by a small group, enhancing their ability to qualify for the special tax treatment that S-Corporation status provides. Moreover, this requirement helps to differentiate S-Corporations from larger corporations, which can issue shares to an unlimited number of shareholders.

The requirement reflects the intent behind S-Corporation designation, which is to provide small businesses with a favorable tax structure while maintaining simplicity in management and operations. The restriction on the number of shareholders is one of several qualifications that aim to keep the organizational form accessible and straightforward for small business owners.