What is a key feature of an S Corporation?

A key feature of an S Corporation is the requirement for a single class of stock. This means that all shares must confer identical rights to distribution and liquidation proceeds. The restriction on having only a single class of stock is designed to ensure that all shareholders have equal stakes in the distribution of the corporation's profits and assets.

This characteristic is crucial for maintaining the pass-through taxation benefit that S Corporations enjoy, where income is taxed at the individual shareholder level rather than at the corporate level. By limiting the corporation to one class of stock, S Corporations promote fairness among shareholders and simplify the mechanics of profit distribution.

The other choices reflect characteristics that do not align with the fundamental requirements or benefits of S Corporations. For instance, S Corporations have a limitation on the number of shareholders, generally capped at 100, and they do enjoy significant tax benefits. Additionally, when it comes to foreign incorporation, S Corporations can only have shareholders who are either U.S. citizens or residents, which negates the unlimited potential for foreign ownership.