Can I Give Away My Shares in an S-Corp?

by Trudie Longren, studioD

S corporations are entities with a special tax status. Income, losses, deductions and credits are reported to the Internal Revenue Service directly by the shareholder on her personal income taxes, rather than by the corporation. Because S corporation shareholders declare the business income or loss solely on personal income tax, they avoid double taxation. Shares in an S corporation can be given away if the gift complies with Internal Revenue Code restrictions.

Permissible Shareholders

The Internal Revenue Code restricts the kinds of shareholders who can own shares in an S corporation. If you give shares away, you must take care to ensure that the recipient is one of the permissible shareholders for S corporations. You may give your shares to individuals and certain trusts and estates that comply with the Internal Revenue Code specifications.

Ineligible Corporations

You can give your shares only to eligible corporations. The Internal Revenue Code limits what types of corporations can own shares in an S corporation. Consequently, you may not give away S shares to certain types of financial institutions, international sales companies based in the U.S., or insurance companies.

Non-permissible Shareholders

The Internal Revenue Code does not permit shareholders of an S corporation to be partnerships or non-resident aliens. Therefore, you may not give your shares away to such entities or persons.

Numerical Limits

The Internal Revenue Code stipulates that there may be no more than 100 shareholders in an S corporation. When giving away shares, you must ensure that the total number of shareholders will not exceed the limit after the shares are given away.

About the Author

Trudie Longren began writing in 2008 for legal publications, including the "American Journal of Criminal Law." She has served as a classroom teacher and legal writing professor. Longren holds a bachelor's degree in international politics, a Juris Doctor and an LL.M. in human rights. She also speaks Spanish and French.

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