What is a requirement for an S Corporation in terms of shareholders?

An S Corporation must have no more than 100 shareholders, which is a fundamental requirement defined by the IRS for S Corps. This limit is established to maintain the corporation's status as a pass-through entity for tax purposes. The rationale behind the 100-shareholder limit is to ensure that the organization remains relatively small and closely held, allowing for simpler management structures and tax reporting. Each shareholder must also be an eligible individual, estate, or specific type of trust, further emphasizing the restricted nature of ownership.

The other options describe conditions that do not align with the requirements for S Corporations. For example, S Corporations cannot issue preferred stock; they can only issue one class of stock, which makes option related to preferred stock incorrect. Additionally, there is no minimum shareholder count specified for S Corporations, making the option about needing at least 10 shareholders unnecessary. Furthermore, S Corporations cannot be owned by C Corporations, as all shareholders must be individuals or eligible entities in order to maintain their S status.