Why an S Corporation?
S Corporations are secure, and provide significant protections from liability. A business owner, when an S Corp is set up correctly, is not personally responsible for the liabilities and debts of the business. However, it retains the benefit of pass-through taxation (this allows an owner to report losses and income on their personal tax returns).
ADVANTAGES:
The advantages of an S Corp include pass-through taxation, protection from liabilities and debts, and the ability to avoid the "double-taxation" that accompanies a C Corporation. An additional benefit is that an S Corp can sell stock in order to raise capital (not available to LLCs). An S Corp can also, in most cases, appear more legitimate than an LLC and definitely more than a Sole Proprietorship. An S Corp does require that profits are distributed depending on how much stock is owned by the partners in the business. Due to their perceived legitimacy, S Corps are at a lower risk of audit and business expenses are often tax-deductible. Lastly, an S Corp allows for partners to be classified as employees, which can provide significant tax savings.
WHAT ARE THE DRAWBACKS?
- Articles of Incorporation must be filed with the state
- S Corps must have bylaws and issue stock to the partners
- S Corps also require that the company hold official meetings with shareholders and directors
OWNERSHIP Considerations:
S Corporations do have certain thresholds required by the government. The owners must be US citizens, partners cannot be other corporations or trusts, and there must be fewer than 100 owners. In addition, S corporations can only have one class of stock, but they can have differing voting rights.
TO GET STARTED:
S Corporations are more complex to create (and maintain) than sole proprietorships, LLCs, or General Partnerships. To begin the process of creating an S Corp, please fill out the form below and one of our representatives will be in touch with you shortly: