Question

question 5 (20 points)
which of the following characteristics do both c corporations and s corporations share?
both are subject to pass - through taxation
both can limit liability for all shareholders and directors
both can have an unlimited number of shareholders
both require all shareholders to be u.s. citizens or permanent residents

Explanation:

• Pass - through taxation: C - corporations are subject to double - taxation (corporate income tax and then shareholders' tax on dividends). S - corporations are pass - through entities (income is taxed at the shareholder level only). So this is incorrect.
• Unlimited number of shareholders: S - corporations are limited to 100 shareholders (as per IRS rules). C - corporations can have an unlimited number. So this is incorrect.
• Shareholder citizenship/residency: S - corporations have restrictions (shareholders must be U.S. citizens or permanent residents). C - corporations do not have such a universal restriction. So this is incorrect.
• Limited liability: Both C and S corporations provide limited liability to their shareholders (shareholders' personal assets are generally protected from corporate debts). Directors also have limited liability in the normal course of business operations (not liable for corporate losses beyond their investment, etc.)

Answer:

Both can limit liability for all shareholders and directors.