Although it is a small company,Zorn Enterprises owns a large number of inexpensive rental housing units in Texas and Louisian A.Currently,the company is a chartered C-corporation,but the owners are interested in switching to an S corporation.After consulting a lawyer,they learned that Zorn Enterprises does not qualify to be designated as an S corporation.Which of the following characteristics of Zorn Enterprises would prevent it from becoming an S corporation?
A)The firm has fewer than 75 stockholders.
B)The firm is chartered in one state,but owns property in another.
C)The firm has only one class of stock,all owned by U.S.citizens.
D)The firm receives more than 70 percent of its income from rents and other passive sources.

Question

Quizplus · Accepted Answer

S corporations are limited to having no more than 100 shareholders, only one class of stock, and must have U.S. citizens or residents as shareholders. Additionally, S corporations cannot have more than 25% of their income from passive sources such as rental income. Since Zorn Enterprises receives more than 70% of its income from rentals and other passive sources, it does not qualify to be an S corporation.

Although It Is a Small Company,Zorn Enterprises Owns a Large