Frequently Asked Questions
What are the restrictions for an LLC member if the company is taxed as an S-corporation?
When an LLC opts to be taxed as an S-corporation, there are certain restrictions that apply to its members. The first restriction is the number of shareholders. An S-corporation is limited to a maximum of 100 shareholders at any given time. This is a significant consideration for multi-member LLCs, which otherwise have no limit on the number of members. The second restriction pertains to the nature of the shareholders. In an S-corporation, each shareholder must be an individual. This means that LLC members cannot be a corporation or any other type of business entity. This restriction is in contrast to the general rule for LLCs, where members can be individuals or organizations such as pension plans, trusts, another LLC, a corporation, or a holding company that owns the LLC. Furthermore, certain individuals and entities are prohibited from being LLC members if the company is taxed as an S-corporation. These include partnerships and individuals who are not United States residents.
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