Does an LLC taxed as an S-Corp still have restriction on ownership?

Updated March 19, 2024

The answer is YES, there are still restrictions on ownership for an LLC that is taxed as an S-Corporation. There is some confusion and it is important to understand that even if you have an LLC, once you choose to tax it as an S-Corp the S-Corp restriction on ownership also then apply.

To qualify for S-Corporation status, an LLC must meet certain criteria, including the following ownership restrictions:

1. The LLC must have no more than 100 shareholders.
2. All shareholders must be individuals, certain trusts, estates, or tax-exempt organizations.
3. Shareholders cannot be non-resident aliens.

In addition to these ownership restrictions, an LLC that is taxed as an S-Corporation must also follow certain operational and reporting requirements, such as:

1. The LLC must file an annual tax return with the IRS.
2. The LLC must hold regular meetings and maintain corporate minutes.
3. The LLC must issue stock certificates to its shareholders.

What this means is that your Asset Management Limited Partnership, is NOT QUALIFIED to own an LLC taxed as a partnership.

It’s important to note that while an LLC that is taxed as an S-Corporation may have some tax advantages, such as avoiding double taxation, it may not be the best choice for every business. It’s always a good idea to consult with a tax professional or attorney before making any decisions regarding your business structure.

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