LLC as shareholder

[bardon719]

Hi all;

Can an LLC become a shareholder of an S-Corporation?

I think not, but just want to check.

Thanks,

Don

[Lion EA]

No. Looked this up recently for a client, for his lawyer, actually, who was going to do that. The lawyer even admitted he'd forgotten that fact and thanked me! An S-Corporation can be a member of an LLC, but an LLC cannot be a shareholder in an S-Corporation. Can be a shareholder in a C-Corporation. S-Corporation shareholders can be domestic individuals, and some trusts and estates, no foreigners, though.

[jainen]

>>Can an LLC become a shareholder of an S-Corporation?<<

IRS has been tolerant in letting S-corps correct an inadvertent termination when an LLC became a shareholder. In a few cases they have even let the LLC continue to be a shareholder, treated as a disregarded entity not separate from its members. You need a compelling argument and a Private Letter Ruling, however, so don't take this as a green light.