Hi bizguy1959:
Thanks for the interesting question.
The answer is to your question is "yes and no".
An LLC cannot own any stock in an S-corporation. An S-corporation can
*only* own stock in another S-corporation if the parent S-corporation
owns 100% of the stock in the child S-corporation.
A good overview of the ownership rules for S-corporations can be found at:
SMALL BUSINESS S CORPORATIONS
URL: http://www.kelan.net/cpanet/scorporations.htm
Quote:
*******************
An S corporation may have no more than 75 shareholders at any one time
.Stock owned by a husband and wife is treated as if owned only by one
share holder as long as both spouses are citizens or residents of the
United States. If divorced, former spouses are treated as separate
share holders. There are significant limitations on what individuals
or entities may be S corporation shareholders.
Eligible shareholders include:
* Individuals who are citizens or resident aliens of the United States;
* Estates:
* certain trusts; and
* Charitable organizations, certain pension trusts and employee
stockownership plans.
C corporations, S corporations, non-resident aliens, partnerships and
foreign trusts may not be S corporation shareholders. One important
exception to the S corporation prohibition of an S corporation owning
another S corporation is the 100 percent owned electing S
subsidiaries. Another relatively new change to S corporation
shareholder rules is the creation of Electing Small Business Trusts,
which allow income to be distributed to, or accumulated for, a class
of individuals. Electing Small Business Trusts are often used to
facilitate estate and family financial planning.
************************
Some further references for this:
Choice of Entity Facing Internet and Other .Com Start-ups
S Corporation vs. C Corporation vs. Limited Liability Company
URL: http://www.cushingdolan.com/pages/misc/CHOICE.html
Quote: "An S corporation now may own a subsidiary S corporation
provided the parent owns 100% of the subsidiary S corporation. IRC §
1361(b)(3)(B)(i). The QSSS must be a domestic corporation which is not
an ineligible corporation such as a financial institution, insurance
company, or DISC. IRC § 1361(b)(3)(B). The parent S must elect
affirmatively to treat the subsidiary as a qualified subchapter S
subsidiary. IRC § 1361(b)(3)(B)(ii)."
The ability for S-corporations to be wholly owned by another
S-corporation came about with the Small Business Jobs Protection Act
of 1996:
Choice of Entity Facing Internet and Other .Com Start-ups S
Corporation vs. C Corporation vs. Limited Liability Company
URL: http://www.cushingdolan.com/pages/misc/CHOICE.html
Quote: "Prior to the Small Business Jobs Protection Act of 1996, an S
corporation could not be a member of an affiliated group. An affiliate
consisted of a parent corporation and one or more 80% owned
subsidiaries. As a result of this rule, an S corporation could not own
80% or more of the stock of another corporation (whether the
subsidiary was an S corporation or a C corporation). In addition, an S
corporation could not have as a shareholder another corporation of any
kind. IRC § 1361(b)(1)(B). As a result, an S corporation could not
have as a shareholder another S corporation."
Search Strategy (on Google):
* "s-corporation" owned
* "s-corporation" owned "another s-corporation"
* "Small Business Jobs Protection Act of 1996"
* "s-corporation" LLC own
I hope this helps!
websearcher |
