What must remain under 100 for a Sub Chapter "S" Corporation to maintain its status?

A Subchapter S Corporation is a specific tax designation provided to qualifying corporations in the United States, allowing them to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. One of the requirements to maintain this S Corporation status is that it must have no more than 100 shareholders. This limitation ensures that the corporation can benefit from the pass-through taxation treatment while still being managed in a manner that aligns with the intentions of smaller corporations.

Maintaining 100 or fewer stockholders allows the S Corporation to avoid potential pitfalls that could arise with larger ownership structures, such as complexities in governance, additional tax implications, and more sophisticated regulatory requirements typically placed on larger entities. This restriction emphasizes the intent of S Corporations to support small businesses.

Assets, directors, and employees are not constrained by a numerical limit in the same way stockholders are. While directors must adhere to certain regulatory requirements concerning governance and employees must comply with labor laws, these categories do not have a cap akin to the stockholder limit inherent to S Corporations. Therefore, recognizing that the number of stockholders must remain under 100 is critical for maintaining the S Corporation status aligns with the overarching goal of facilitating small business operations under favorable tax conditions.