S corporation eligibility definition

To be eligible for an S election, the corporation must meet certain shareholder requirements:

- An election must be made after the corporation is formed, initially as a C corporation.

- No more than 100 shareholders (up to six generations of a family are treated as one shareholder).

- Only certain types of trusts are permitted to be shareholders

- There can be no non-resident alien shareholders

- The board of directors of the corporation must agree to the election and should indicate this assent in the minutes of a board of directors meeting.

Remember, if state law also allows S status, a separate election may have to be filed with the state. Check with all state law requirements.