Hi.
The short answer to your question is "yes."
A qualified Subchapter S Corporation is a corporation that has elected
to have its profits and losses passed through to the shareholders
instead of being taxed at the corporate level. Subchapter S status has
to do with how the corporation is treated for federal income tax
purposes. It does not determine corporate rights.
As explained on Yahoo Small Business-Entity Comparison:
"An S Corporation is simply a C Corporation (also known as a standard
business corporation) that files IRS form 2553 to elect a special tax
status with the IRS. The articles of incorporation that are filed with
the state are same whether a corporation is a C Corporation or S
Corporation."
As explained on this web site of the Napa Valley College Small
Business Development Center:
Subchapter S Corporation "offers all the benefits of a corporation,
but with a different tax structure. S corporations pay no Federal
income tax, but pay tax in the State of California. Like a
partnership, the S corporation's shareholders report the company's
income or losses on their personal tax returns. S corporations are
limited to one class of stock and no more than 35 shareholders."
http://www.napasbdc.org/answers.html
See also "Deciding on the Best Legal Form for Your Business" on
Dummies.com:
http://www.dummies.com/Money/Small_Business/Starting_a_Small_Business/0-7645-5094-2_0013.html
Assuming that the sale of the stock is not prohibited in some way by
corporate bylaws or shareholder agreements, corporate stock is freely
transferable.
Why would there be such prohibitions? It's explained here by "The
Complete Idiot's Guide to Investing and Personal Finance":
If your corporation has more than one shareholder, the shareholders
should prepare a Shareholders' Stock Purchase Agreement. The agreement
provides a method by which a retiring or deceased shareholder's stock
may be purchased. Without this restriction, stock is freely
transferable, meaning the stock can be sold to anyone. In a small
corporation, shareholders are more like partners, so a new shareholder
who is not approved by the other shareholders can cause problems if
you don't have an agreement."
http://www.idiotsguides.com/Chapters/0028639626_CIG_Law_Small_Business/file.htm
Now will the new owner be able to keep the S-Corporation tax status?
Well, that depends. The new owner would have to meet the following
criteria:
-Be incorporated and organized in the United States.
-Have only one class of stock (common).
-Be limited to a maximum of 75 shareholders.
-Have only individuals, estates, and certain trusts as shareholders.
-Have no nonresident aliens as shareholders.
Source: "The Complete Idiot's Guide to Investing and Personal Finance"
http://www.idiotsguides.com/Chapters/0028639626_CIG_Law_Small_Business/file.htm
I hope this helps. |
