Can a Minor Child Be a Shareholder of an S Corporation?

Ownership of shares in a corporation is a property interest, just like any other property interest. Shares can be owned by anyone with the legal capacity to own property in his own name. One of the traditional benefits of the corporate business entity type is the structure of stock as a tangible asset that is freely transferable. Complications can arise, however, when a corporation elects Subchapter S status with the Internal Revenue Service. The type of shareholders the corporation can have is restricted under this election.

An S corporation starts off as a regular corporation. It is formed by filing articles of incorporation with a state business registrar. Once the corporation is properly authorized under state law, the shareholders have the option to designate it as a small business corporation under Subchapter S of the Internal Revenue Code for federal income tax purposes. This designation provides the corporation with significant tax benefits but comes with specific restrictions on the type of shareholders that can hold stock in the corporation.

A corporation becomes an S corporation by making an election on IRS Form 2553. The instructions to the form list all of the restrictions and requirements that a corporation must meet to qualify for the election. In fact, the IRS requires every shareholder to sign the form, giving permission to make the election and asserting eligibility. This is where any restriction on the eligibility of minor children as S corporation shareholders would be specifically addressed, because the form serves as a testamentary document and such a restriction would have to be specified to be included.

The restrictions on S corporation shareholders do not include an age restriction. Subchapter S requires shareholders to be individuals and to be citizens or resident aliens but does not require shareholders to be over the age of 18 years. In fact, the provisions contemplate family ownership of stock and specifically allow stock held by multiple family members to be treated as if the shares were held by one shareholder. No mention is made to preclude children as owners.

Shares of stock are considered personal property and are freely transferable. This means that anyone can own stock, in the same way as any property can be owned. Children are allowed under general law to own property in their names. A child might require a guardian to manage the property until he comes of age, but he still owns it. The same is true with stock certificates. Stock in a regular corporation can be placed in the name of a child, for instance, as a gift. Absent any specific restriction, stock in an S corporation has the same ownership eligibility as a regular corporation. Minors can be shareholders in an S corporation as they can be in any corporation.

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