Frequently Asked Questions
Why can't LLCs own any shares in an S Corp?
For LLCs owning shares in an S Corp, it's important to understand the different rules and regulations that govern these two types of business entities. S Corporations, unlike LLCs, aren’t business entities but a type of tax classification that can be elected by LLCs and corporations. However, the IRS has imposed stricter shareholder requirements for S Corps. LLCs, whether single-member or multiple-member, are not allowed to own any shares in an S Corp. This is due to the fact that S Corps are classified as disregarded entities and aren’t subject to corporate taxes. To gain S Corp tax status, an entity must adhere to certain rules, including not having more than 100 members, owners, or shareholders, all of whom must be state residents and U.S. citizens. On the other hand, LLCs have fewer regulations regarding their membership. They can be formed by individuals, corporations, business trusts, estates and trusts, agencies, partnerships, other LLCs, associations, joint ventures, public corporations, government subdivisions, and any legal or commercial entities.
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