S Corp Ownership

Hi Lee Phillips again

talking about subchapter S stock or corporations or LLCs

taxed under subchapter S.

The IRS has certain rules that you have to follow

in order to have a subchapter S tax classification

and that could be a corporation legal structure

or an LLC legal structure

either one can be taxed under subchapter S of the IRS code.

Basically subchapter S was developed to make it so that

mom-and-pop could have the corporate shield

and be protected by their corporation or their limited liability company

their LLC

and still basically be taxed as a partnership.

We didn't want to submit them to the taxation

dividends and all that crap

of a chapter C organization

yeah a chapter C you know it's it's difficult.

So we created subchapter S

and in order to qualify that for that

the company

the LLC or the corporation

has to be a domestic company

it can't be a foreign company


the only people who can own subchapter S stock or LLC membership interests

are basically warm blooded United States citizens.

Now we could have a green card holder and there's a bunch of rules

but basically you've got to be a warm blooded American.

That means that

another corporation or another LLC can't own a subchapter S entity

they can't own an interest in the subchapter S entity

now you can have a qualified subchapter S trust

or a electing small business trust

or there are a number of trust variations

that could own subchapter S interests

and they're okay

but basically they have to have only one beneficiary

kind of the gig is that is

is the IRS wants to know who they can tax

for this money

that is coming through this LLC or this corporation.

So they've set all of these rules in place

so that we know

who we're gonna put the finger on

and who we're gonna tax

for the money that comes through this entity.

So you can't have another company own a S interest

you can't have a foreign own an S interest

Oh, and you can only have up to 100 owners

now husband and wife can be considered one owner

and they're a bunch of variations on that but


no more than 100 and

when I started out, this will tell you how long I've been doing it,

it was 25.

So they've gradually upped it

so that we can have up to 100 owners

of the LLC or the corporation

which is taxed under subchapter S of the IRS code.

So you've got to follow the rules

and if you don't follow the rules

you get screwed

because the IRS comes back in and says no no no no

this isn't an S corporation

this is a corporation that's taxed under Chapter C of the IRS code

or an LLC that's taxed under Chapter C of the IRS code

and that throws the whole thing in

and they go back and they assess everybody with the taxes

and it really screws things up.

So you want to make sure

that you are following all of the rules

whenever you have an S entity

and if you're mom-and-pop

and you're downtown US

and you've been citizens for 69 million years

you were born here

and bla bla bla bla bla it's no big deal.

If you start to use trusts to own the interest

then maybe that is a bigger deal and

mom and dad actually want their living revocable trust

to own their subchapter S interest

because that way it won't have to be probated

when mom and dad die.

So that's a big deal and

and I have another YouTube about trusts owning subchapter S interests

don't forget to subscribe

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YouTube videos that I have that are relevant to what we're talking about here.

This is Lee Phillips talking about

subchapter S entities and ownership.