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Because of the one-class-of-stock restriction, an S corporation cannot allocate losses or income to specific shareholders. Allocation of income and loss is governed by stock ownership, unlike partnerships or LLCs taxed as partnerships where the allocation can be set in the partnership agreement or operating agreement.

Shareholders must be US citizens or residents. The business may have no more than 100 shareholders. The business may only have one class of stock (if stock is issued). The business profits and losses may only be allocated in proportion to each owner's interest in the business.

Requirements for an S corporation include: The corporation must not have more than 100 shareholders. All shareholders must be individuals, estates, certain tax-exempt organizations, or certain kinds of trusts. None of the individual shareholders can be classified as a nonresident alien.

In order to qualify for S corporation status, the IRS requires the corporation to be residentially located in the United States, retain fewer than 100 shareholders limited to individuals, trusts, and estates (excluding partnerships, corporations, and nonresident alien shareholders), issue only one class of stock, and ...

To register a business as an S corporation, Articles of Incorporation (sometimes called a Certificate of Incorporation or Certificate of Formation), must be filed with the state and the necessary filing fees paid. After incorporation, Form 2553 must be filed with the IRS in order to elect S corporation status.

Shareholders must be US citizens or residents. The business may have no more than 100 shareholders. The business may only have one class of stock (if stock is issued). The business profits and losses may only be allocated in proportion to each owner's interest in the business.

To form an S Corp in California, you must file Form 2553 (Election by a Small Business Corporation) with the IRS and then complete additional requirements with the state of California, including filing articles of incorporation, obtaining licenses and permits, and appointing directors.

Foreign trusts and nonresident aliens may not be shareholders of an S corporation. Individuals are eligible shareholders.

IRS Requirements for an S Corp It must have only one class of stock. There can be no more than 100 shareholders. Shareholders must meet certain eligibility requirements, that is, they must be individuals, specific trusts and estates, or certain tax-exempt organizations 501(c)(3).