To avoid this double taxation, corporations often make a Subchapter-S small business election with the Internal Revenue Service. When this election is made, the small business corporation itself is not taxed on its income, but the income is instead allocated to the income of the shareholder. While this small business election is a good solution for the double-taxation issue, it does come with certain conditions.
- Only United States citizens may be shareholders in S corporations and partnerships and corporations cannot be shareholders.
- S corporations may only have one class of stock.
- As of 2005, S corporations may have no more than 100 shareholders.
- Most S corporations are also required to adopt a tax year ending December 31 rather than a fiscal tax year ending on some other date.
Aside from the taxation advantage and the ownership and stock limitations imposed on S corporations, these corporations have many of the same characteristics as a traditional general business corporation. S corporations have officers, directors and shareholders similar to a general business corporation, and must comply with the same corporate formalities.
Subchapter S elections are made with the IRS; the Florida Secretary of State has no record or knowledge of such status or election.