For S-Corporation election, which requirement must be fulfilled regarding shareholders?

For an S-Corporation election, the requirement regarding shareholders is that they must be U.S. residents. This is a fundamental criterion because S-Corporations are intended to be closely held corporations, and the tax benefits they offer are designed for domestic entities. S-Corporations allow income to pass through to shareholders, avoiding double taxation. However, to qualify for this election, shareholders must be individuals who are U.S. citizens or resident aliens, or certain trusts and estates.

The other options do not meet the criteria defined by the IRS for S-Corporation eligibility. Corporations, foreign entities, and non-profits cannot serve as shareholders in an S-Corporation, as this would contradict the purpose and structure of an S-Corp, which aims to provide pass-through taxation and limited liability primarily to U.S. resident individuals and specific permitted entities.