An S corporation can have one shareholder. S corporation shareholders must be individuals, certain trusts and estates, or tax-exempt organizations. Partnerships, corporations, and nonresident aliens cannot be shareholders.
Liability and Tax Implications
Sole proprietors have unlimited liability. S corps offer liability protection by separating personal and business assets. However, owners may be personally liable if the corporate veil is pierced.
S corps pass profits to owners. Owners pay taxes once.
S corps protect owners from business debts mostly. Owners pay taxes on salaries. Forming an S corp adds credibility. Transferring S corp ownership is easy.
No business structure is inherently better. S corps relate to taxes, while LLCs relate to legal status. A business can be an S corp and LLC.
C corps pay corporate taxes, then shareholders pay taxes. S corp owners pay personal rates once.
Corporate Formalities and Flexibility
- S corps must follow corporate formalities.
- LLCs can divide profits flexibly.
All shareholders must have the same stock type. An S corp can pay salaries and distributions. But salaries must be reasonable. An S corp can own an LLC to utilize its flexibility.
Can an S Corp have only one owner?
Yes, an S corporation can have one shareholder.
Does an S Corp need two owners?
No, an S corporation can have one to 100 shareholders.
Comparing S Corps and LLCs
An S corp must follow corporate formalities set by its state statute. An LLC can divide profits however its owners want.
S corp treatment benefits individual U.S. citizen owners. An S corp can pay profits as salaries and distributions, while an S corp may own an LLC for added flexibility.
Forming an S corp adds credibility, and transferring S corp ownership is easy.
Between S corps and LLCs, there’s no universally “best” choice. Both offer liability protection.
While the strict IRS rules can be a hassle, they ensure business structures meet requirements.