Utah General Contractors - Business and Law Practice Exam

Subchapter "S" Corporations, commonly known as S Corporations, have specific requirements that must be met to retain their status. One key requirement is that an S Corporation can have no more than 100 shareholders. This limitation is designed to maintain a certain level of simplicity and align with the intended purpose of S Corporations, which is to facilitate small businesses and provide certain tax benefits. Thus, if the number of shareholders exceeds 100, the corporation loses its S status and will be taxed as a C Corporation, which is subject to different tax regulations and potential double taxation on profits. Therefore, the correct understanding here is that exceeding this limit effectively nullifies the advantages associated with being classified as an S Corporation. While family-owned businesses can also opt for S Corporation status, this is not a criterion for retaining that status. The fundamental constraint relates strictly to the number of shareholders. Hence, the assertion that an S Corporation can maintain its status regardless of its number of shareholders is inaccurate. Only those corporations that remain within the stipulated limit can preserve their Subchapter "S" election.