when setting up a sample shareholder agreement s corp, it means complying with the corporate laws of the state where the articles of incorporation were filed.3 min read when setting up a sample shareholder agreement s corp, it means complying with the corporate laws of the state where the articles of incorporation were filed. when a company of a few shareholders runs a small-scale organization, the company must consider tax ramifications and also base strategy on some occurrences, like transfer-of-stock ownership.â  in subchapter c of the internal revenue code, the incorporation tax rules put in default clearly state that corporations disburse taxes on their income. when a normal corporation gets qualified with the guidelines of subchapter s of the internal revenue code, the company may decide to build an exceptional tax election with the irs. eligibility of subchapter s corp can happen when a corporation complies with the internal revenue code rules that have to do with the type and number of shareholders the company may contain.

the contents of the shareholder agreement differ from one s corporation to another. a c corporation can elect to be taxed according to subchapter s of the internal revenue code. the advantage of this is that the corporation doesn’t need to pay income taxes at the entity-level. this enables the s corporation to avoid double taxation of dividends and net income. corporations need to follow the rules established by the internal revenue code in order to be able to make an election for subchapter s. these rules are related to the number of shareholders that a corporation can have as well as the type of shareholders. if the shares of an s corporation are transferred to an ineligible shareholder, the subchapter s election of the corporation terminates immediately.