Tax Guru – Ker$tetter Letter

Q:

Subject: S CORPS

I was reading your article on S Corps and was wondering if each corporate officer must be a shareholder in the S Corp?  In other words, does the title of corporate officer imply ownership or can it be a status only recognized perhaps in the articles of incorporation or even set up at a later date?  (ie is it possible to be a corporate officer in as S Corp but not receive a K1?)

 Thanks for any input you can forward.

A:

While it is very common with small corporations for one person or a few persons to encompass all of the roles in operating them, that is not required.  Different people can have different roles.

It is really no different than with a large billion dollar corporation, where the roles are usually held by different people.  The most common roles are shareholders, officers, directors and employees.  Although a person can have more than one of those roles, they don’t have to and can just fill one role at a time.

So, with an S corp, just as with a C corp, the shareholders can be different people than the officers or than the directors or than the employees.  The critical difference for S corps is that there are special limits on who can be a shareholder without jeopardizing the S status.  Your personal professional tax advisor can assist you in complying with those restrictions.

Besides consulting with your own personal professional tax advisor before setting up a corp or making any major decisions as to its strategies, you may want to check out the very useful reference materials on the principles of corporations and how to operate them properly from such sources as Nolo Press.   I have been using their books for well over 20 years and still frequently refer to them.  Reading over them will save you a lot of legal fees, as well as keep you out of trouble.

Good luck.  I hope this helps.

Kerry Kerstetter