Which type of business entity has restrictions on the type of owners it can have?

An S corporation has specific restrictions on the types of owners it can have, which makes it distinct from other business entities. For an entity to qualify as an S corporation, it must adhere to various criteria, including limitations on ownership. For instance, S corporations can have no more than 100 shareholders, and all shareholders must be U.S. citizens or residents. Additionally, they cannot have partnerships, corporations, or non-resident aliens as shareholders. These ownership restrictions are designed to ensure the S corporation maintains its status for favorable tax treatment, distinguishing it from limited liability companies, partnerships, and traditional corporations, which typically do not have the same stringent ownership requirements.

Understanding these limitations is crucial for entrepreneurs considering the best structure for their business, especially if they want to take advantage of the tax benefits that come with S corporation status while navigating the complexities of ownership eligibility.