An S election is made by a small business corporation with the consent of its shareholders. Both the corporation and its shareholders must precisely follow the S election requirements or the election will not be valid.

Qualified corporation. A corporation qualifies as a small business corporation for S corporation purposes if the following requirements are met, regardless of the corporation's size or earnings:

• The corporation is a qualifying domestic corporation;
• It is not an ineligible corporation;
• It has no more than 100 shareholders;
• All shareholders are individuals, estates, certain trusts or qualifying tax-exempt entities;
• No shareholder is a nonresident alien; and
• Only one class of stock is outstanding.

Form 2553. To make an S election, a qualified small business corporation files Form 2553, Election by a Small Business Corporation. The form must be signed by an authorized corporate officer and accompanied by the appropriate shareholder consents or with a written statement of consent signed by each shareholder. These items are filed with either the Internal Revenue Service Center in Cincinnati, Ohio, or in Ogden, Utah, depending on where the corporation's principal business, office or agency is located. The form has instructions so it is a good idea to follow those when filling out the form.

Shareholder consent. All shareholders of the corporation must indicate their consent to the S election. The consent may be provided using Form 2553 or an attachment to it.

Deadlines. The election has to be made on or before the 15 ^th day of the third month of the corporation's tax year in order for the S election to be effective beginning with that year. If the proper election is not made by this day the election does not become effective until the following year.

Once an S election is in effect, new shareholders need not consent to keep the election effective. The election remains valid, although a new majority shareholder may revoke the election after acquiring the shares.