How does a S-Corporation differ from a C-Corporation in terms of shareholder restrictions?

A S-Corporation differs significantly from a C-Corporation in terms of shareholder restrictions, primarily regarding the number and types of shareholders it can have. A S-Corporation is limited to a maximum of 100 shareholders, not 75, but the correct understanding focuses on the limitations imposed on the number of shareholders and the specific criteria for qualification.

The number of shareholders is a strict criterion that differentiates the S-Corporation structure, emphasizing that it is intended for smaller, closer-knit business operations rather than larger corporate entities. This restriction is designed to keep the S-corporation's tax benefits targeted primarily to smaller businesses, ensuring that it serves as a platform for growth without the complexities often associated with larger corporate structures.

Regarding stock classes, S-Corporations can only issue one class of stock, which aligns with their intention to maintain a simpler structure than that of a C-Corporation, which can offer multiple classes of stock with varying privileges. As for nationality, S-Corporations are restricted to having shareholders who are U.S. citizens or residents, whereas C-Corporations can have foreign shareholders without restriction.

Thus, B captures an important aspect of the S-Corporation's structure that distinguishes it from a C-Corporation