Jason is one of 100 shareholders in Jace Corporation. The remaining 99 shareholders are unrelated individual U.S. residents. During the year, Jason gave several of his shares in Jace Corp. to his brother as a birthday present and to his best friend, Hal (unrelated to all shareholders in Jace Corp.), as a wedding present. After these gifts, Jace Corp. has 102 shareholders. Is Jace Corp. prohibited from electing to become an S corporation? Explain.
What will be an ideal response?
Yes.
Jace Corp. may not make an S election because it has 101 shareholders (one more than the limit). Jason's brother and Jason are counted as one shareholder but Jason's friend Hal is the 101st shareholder because he is unrelated to all of the Jace Corp. shareholders.
S corporations are limited to 100 unrelated shareholders.
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Answer the following statement true (T) or false (F)
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