Note that an S corporation can have nonvoting stock because not being able to vote doesn't affect a shareholder's shares of profit, loss and distribution. Also, an S corporation can pay different employees (including shareholder-employees) different salaries.

S Corporations Can't Appear on the Prohibited S Corporation List

One final qualification to being an S corporation needs to be mentioned. Some types of corporations are prohibited by law from operating as S corporations. The list includes Subchapter L insurance companies, banks and other financial institutions using the "Sec. 585 reserve method" for dealing with bad debts, domestic internal sales corporations, and (finally) a corporation that's taken the Puerto Rico and possessions tax credit for doing business in a U.S. possession.

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