Yes, under the U.S. tax code, a foreigner, non-citizen, resident alien may be an S corp shareholder. Said another way, an S corporation can be owned by a foreigner, non-citizen, resident alien. However, an S corporation generally cannot be owned by a nonresident alien. Many owners of companies in the United States are not citizens.
Minnesota Statutory Close Corporation (S Corp.) Attorney
“Subchapter S” allows a traditional corporation meeting strict requirements to escape “double taxation” by making a federal income tax “election” to be taxed as a “pass-through” entity. As such, the “S” corporation form of business organization is not a different form of corporation at all, but instead strictly a creature of tax treatment.
The “S” Corporation is also incorporated by filing its Articles of Incorporation with the Office of the Secretary of State and applying for a Federal Employer Identification Number and state tax identification number. Then, the Corporation must, within roughly 2.5 months of the start of its tax year, “elect” to be an “S” Corporation by filing federal Form 2553, Election by a Small Business Corporation. An “election” filed after this point will not be effective until the start of the next tax year. Moreover, the Corporation will be considered a “C” Corporation for each tax year in which it makes no election or an invalid one. For each tax year with a valid election, the “S” Corporation is required to file a federal “S” Corporation return (Form 1120S). The Shareholders include their share of the “S” Corporation’s separately stated items of income, deduction, loss, and credit, and their share of non-separately stated income or loss on their federal individual income tax returns.
The main advantage of the “S” Corporation is its tax treatment. As stated above, the “S” Corporation is a pass-through tax entity – the income or loss generated by the business is reflected on the personal income tax returns of its owners. A qualifying corporation can avoid “double taxation” (that is, profits taxed first at the corporate level as income and again at the shareholder level when distributed as dividends) by electing to be treated as an “S” Corporation. Generally, an “S” Corporation is exempt from federal income tax other than tax on certain capital gains and passive income, allowing profits and losses to flow through to the Shareholders. In other words, the Corporation itself is not taxed on its income, and instead Shareholders pay tax on their proportionate share of such income. The “Subchapter S” election does not affect the status of the organization under state corporation laws as it is strictly a creature of federal income tax law.
Unlike the traditional corporation, the IRS narrowly restricts the ownership make-up of an “S” Corporation. The restrictions are designed to limit the availability of this favorable tax treatment, more or less, to small business enterprises. The restrictions are as follows:
1. The number of Shareholders cannot exceed 100;
2. All Shareholders must be residents of the United States;
3. The Corporation cannot be owned by other S Corporations or most business trusts, LLCs or partnerships;
4. The Corporation must have only one class of stock;
5. The Corporation generally may not own more than 80 percent of any other corporation; and
6. The Corporation must make a timely “election.”
E. Comparative Advantages of the LLC and the S Corp.
The LLC form of business organization may be superior to the S Corporation because, while both forms can be treated as “pass-through” entities for federal income tax purposes (i.e., the income or loss generated by the business is reflected on the personal income tax return of the owners), the IRS does not impose strict restrictions on its existence. That is, the IRS does not limit the number of Members the LLC can have, and its Members can be corporations, partnerships or non-residents. The LLC is free to issue more than one class of stock, so it can reward founders with common stock and grant only preferred stock to investors, etc. Furthermore, the LLC may own subsidiaries without restriction. Finally, the LLC state statutes do not require this form of business organization to follow strict corporate formalities common to corporations, such as holding regular meetings of the Board of Directors and at least annual meetings of the Directors and Shareholders.
On the other hand, the ownership interests in the S Corporation may be more readily transferred to third parties than can the membership interests of the LLC. Typically, the LLC restricts the transfer of membership interests without the approval of at least a majority of the interests. Typically, a shareholder of a corporation is not required to get approval of the other shareholders before selling stock.
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Minnesota Small Business Formation
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S Corporation Form M8 Instructions
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Corporations doing business in Minnesota that have elected to be taxed as S corporations under section 1362 of the Internal Revenue Code (IRC) must file Form M8. Any corporation with a valid federal election under IRC section 1362 is considered an S corporation for Minnesota purposes. The entire share of an entity’s income is taxed
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Complete M8A to determine your Minnesota source income and minimum fee. Note: If you conduct all your business in Minnesota, check the box above line 1. Complete columns A and B and enter 1 1.00000 (for 100 percent) on line 18, column B1 (and the remaining columns, as needed). If a qualified subchapter S subsidiary
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Minnesota S Corporation M8 Due Date
File your return and pay the taxes payable as soon as possible after the end of the tax year, but no later than the due date for filing your federal income tax return. Generally, the due date is: Calendar year returns: March 15 2012 Fiscal year returns: the 15th day of the third month after
General Information on the S Corporation M8 Form in Minnesota
There are four types of tax payments an S corporation can make — extension, estimated tax, tax return and amended return payments. You can pay electronically, by credit or debit card or by check. (See Payment Options above.) Note: If you’re currently paying electronically using the ACH credit method, continue to call your bank as
S Corporation Taxes | Form M8 Instructions
Before you complete Form M8, you must complete the following; you will need to reference them: federal Form 1120 Sand supporting schedules, and Schedule KS for each non resident shareholder and to any Minnesota shareholder who has adjustments to income (see page 10). If this is the S corporation’s first return filed in Minnesota, check
S Corporation Tax FAQ
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LLC VS S Corporation: Which One Should I Get?
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