What type of stock can an S corporation issue?

An S corporation can issue common stock, which is typically the primary type of ownership interest in a corporation. Common stock represents ownership in the company and provides shareholders with voting rights and the potential to receive dividends. The structure of S corporations is designed to allow for straightforward income distribution to shareholders, which is particularly favorable for tax purposes.

While S corporations may theoretically issue preferred stock, they must adhere to specific qualifications set by the IRS, including the limitation on the number of shareholders and the types of permissible stock classes. However, according to S corporation guidelines, they can only have one class of stock to maintain their S corporation status. This means that while an S corporation can issue preferred stock, it generally opts to issue common stock to uphold these regulations.

By choosing common stock as the type of stock S corporations can issue, it aligns with the organization's need to simplify ownership interests while adhering to IRS requirements. Thus, the answer emphasizes that common stock is the primary and appropriate choice for S corporations, confirming their compliance with necessary statutes and ensuring effective governance and income distribution.