Are there limitations on the number and types of shareholders an S corporation can have? If there are such limitations, how are the limitations different from the limitations on the number of members that an LLC can have?

Peter is forming an S corporation. How will the following plans that Peter has for the business affect the eligibility of the business to make the S corporation election?

Peter lives in California, so he plans to incorporate the business in California. However, once the business is established, he intends for the business to expand its operations to several foreign countries.

Peter has several investors who want to buy stock in the new corporation, but some of those investors want to be actively involved in the business and others are only investing for the expected increases in the value of their investments. Peter wants those investors who are actively involved in the business to have greater voting power than those who will not be actively involved in the business.

The Michael Corporation was formed by Mike six years ago as the sole shareholder and elected to be treated as an S corporation. On December 31 of the current year, The Michael Corporation distributed $40,000 cash to Mike. What are the tax consequences (amount of gain or loss and character of gain or loss) to Mike from this distribution in the following scenarios?

Mikes basis in his stock was $45,000 at the time of the distribution.

Mikes basis in his stock was $10,000 at the time of the distribution.

The Theodore Corporation was formed by Ted five years ago as the sole shareholder and operated for several years as a C corporation. At the beginning of the current year, The Theodore Corporation made the election to be treated as an S corporation and operated as an S corporation during the current year. At the beginning of the current year, when The Theodore Corporation began operating as an S corporation, the corporation had no current or accumulated earnings and profits. On December 31 of the current year, The Theodore Corporation made a distribution to Ted of $25,000. At the time of that distribution, Teds basis in his stock was $20,000.

What are the tax consequences of the distribution to Ted?

Using the facts presented above except that when the conversion was made from C corporation status to S corporation status, The Theodore Corporation had $15,000 in accumulated earnings and profits, what are the tax consequences of the distribution to Ted?

There are 100 unrelated shareholders in Big Old Corporation which has operated for a number of years as an S corporation. Robert, one of those shareholders, is considering selling his stock in the corporation. Which of the following scenarios will terminate the S election for the corporation of the corporation? Explain why or why not.

Robert wants to liquidate some of his stock so he can invest in other companies but he wants to maintain some ownership in Big Old Corporation, so he is considering selling some of his shares to a friend.

Robert wants to liquidate some of his stock so he can invest in other companies but he wants to maintain some ownership in Big Old Corporation, so he is considering selling some of his shares to his brother

Robert wants to liquidate some of his stock so he can invest in other companies but he wants to maintain some ownership in Big Old Corporation, so he is considering selling some of his shares to a corporation owned by his father.