What is the limit on the number of shareholders for S corporations?

For S corporations, the limit on the number of shareholders is indeed up to 100. This restriction is set by the Internal Revenue Code to maintain the S corporation's special tax status, which allows income to be passed through to shareholders without being subject to corporate tax rates.

The cap of 100 shareholders applies to individuals and certain qualifying trusts, estates, and tax-exempt organizations, but it does not include non-resident aliens as shareholders. This limitation helps ensure that S corporations are smaller, more closely held businesses, distinguishing them from larger C corporations that can have unlimited shareholders.

Understanding this aspect is important for anyone managing a physician practice, as it impacts decisions related to ownership structure, potential investment opportunities, and tax implications associated with different types of corporations.