S corporations cannot have more than how many shareholders?

An S corporation is limited in the number of shareholders it can have to maintain its tax status and avoid double taxation. Specifically, the Internal Revenue Code stipulates that an S corporation can have a maximum of 100 shareholders. This restriction promotes the intended purpose of S corporations, which is to allow small businesses to benefit from corporate structure while being taxed similarly to partnerships.

The limitation to 100 shareholders helps ensure that S corporations maintain a simpler ownership structure, making it easier for the IRS to administer regulations and for companies to manage their ownership and operations. This figure is particularly significant because it delineates a clear boundary that distinguishes S corporations from C corporations, which can have an unlimited number of shareholders. Thus, the correct answer reflects the essential requirement of S corporations to keep their number of shareholders within this specified limit.