Which of the following statements is true regarding Subchapter S firms?
A)These firms are liable to pay federal income taxes.
B)These firms cannot have more than 100 shareholders.
C)These firms need to pass-through at least half of their earnings to their shareholders.
D)Income from these firms is tax-exempt for its shareholders.
E)All of the options are true for Subchapter S firms.

Question

Quizplus · Accepted Answer

Subchapter S firms, also known as S corporations, cannot have more than 100 shareholders. This is one of the main requirements of this type of business structure, as it is designed to provide the tax benefits of a partnership while also limiting personal liability for the owners. The other statements are incorrect: Subchapter S firms are not liable to pay federal income taxes themselves, but instead pass through their income to the shareholders who report it on their individual tax returns; there is no requirement for them to pass through a certain percentage of earnings; and income from S corporations is not automatically tax-exempt for shareholders.

Which of the Following Statements Is True Regarding Subchapter S