What is a requirement for an S Corporation in Hawaii?

What is a requirement for an S Corporation in Hawaii?

• A. Must have multiple classes of stock
• B. Must have at least 100 shareholders
• C. Must meet requirements of a small business corporation
• D. Must be based in the mainland U.S.

Answer: (C)

An S Corporation in Hawaii, like in other states, must meet the requirements of a small business corporation as outlined by the Internal Revenue Code. This means that the corporation must be a domestic corporation, have no more than 100 shareholders (who must be individuals and U.S. citizens or residents), and have only one class of stock. These criteria are designed to ensure that S Corporations maintain their small business status and benefit from pass-through taxation, where income is taxed at the individual shareholders’ rates rather than at the corporate level. The requirement that an S Corporation should meet the criteria for a small business corporation emphasizes the need for a controlled shareholder structure and operational simplicity, which is beneficial for small business owners looking for tax advantages. Meeting these criteria is vital for maintaining the S Corporation status and, by extension, the tax benefits that come with it in Hawaii. Other factors such as the specific characteristics related to stock classes, shareholder limits, and geographic location do not align with the fundamental requirement to be classified as an S Corporation in Hawaii. Thus, having to meet small business criteria is the anchor requirement for such entities.

An S Corporation in Hawaii, like in other states, must meet the requirements of a small business corporation as outlined by the Internal Revenue Code. This means that the corporation must be a domestic corporation, have no more than 100 shareholders (who must be individuals and U.S. citizens or residents), and have only one class of stock. These criteria are designed to ensure that S Corporations maintain their small business status and benefit from pass-through taxation, where income is taxed at the individual shareholders’ rates rather than at the corporate level.

The requirement that an S Corporation should meet the criteria for a small business corporation emphasizes the need for a controlled shareholder structure and operational simplicity, which is beneficial for small business owners looking for tax advantages. Meeting these criteria is vital for maintaining the S Corporation status and, by extension, the tax benefits that come with it in Hawaii.

Other factors such as the specific characteristics related to stock classes, shareholder limits, and geographic location do not align with the fundamental requirement to be classified as an S Corporation in Hawaii. Thus, having to meet small business criteria is the anchor requirement for such entities.