Multiple Choice
Which of the following forms of business organizations exists as a legal entity separate from its owners?
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1. Introduction to Accounting
Business Organization
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Which of the following is NOT a requirement for S-corporation election?
A
The corporation must be publicly traded on a stock exchange.
B
The corporation must issue only one class of stock.
C
All shareholders must be U.S. citizens or residents.
D
The corporation must have no more than 100 shareholders.
Verified step by step guidance1
Understand the concept of an S-corporation: An S-corporation is a type of corporation that meets specific Internal Revenue Service (IRS) requirements, allowing it to pass income directly to shareholders to avoid double taxation.
Review the requirements for S-corporation election: These include having no more than 100 shareholders, issuing only one class of stock, and ensuring all shareholders are U.S. citizens or residents.
Analyze the given options: Evaluate each option to determine whether it aligns with the IRS requirements for S-corporation election.
Identify the incorrect statement: Note that S-corporations cannot be publicly traded, as this violates the requirement for shareholder restrictions and the single class of stock rule.
Conclude that the correct answer is the statement about being publicly traded, as it is NOT a requirement for S-corporation election and is, in fact, prohibited.
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