Contractor License Practice Exam

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Prepare for the Contractor License Exam with comprehensive quizzes. Study with multiple choice questions, flashcards, and detailed explanations to ensure you're ready for success on exam day!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

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Can "S" Corporations retain their status regardless of the number of stockholders?

True
False
Only up to 50 stockholders
Only if they have a single stockholder

The correct answer is: False

"S" Corporations must adhere to specific regulations regarding stockholders to maintain their status. A key requirement is that they can have a maximum of 100 stockholders. This rule is in place to ensure that these corporations remain closely held entities, where the benefits of pass-through taxation can be effectively managed among a limited number of shareholders. If the number of stockholders exceeds this limit, the corporation will lose its S Corporation status and be subjected to corporate taxation under C Corporation rules. The response indicating that "S" Corporations cannot retain their status regardless of the number of stockholders is indeed accurate, as exceeding the 100-stockholder limit leads to disqualification as an S Corporation. Therefore, understanding these limitations is essential for anyone managing or considering starting an S Corporation to ensure compliance with IRS regulations.