What is a S-Corporation?
All Corporations start out as a regular Corporation. By filing form 2553 with the IRS you are electing to meet the requirements for an S-Corporation. Essentially, an S-Corporation is treated like a partnership for tax purposes, but it has all the limited liability protection of a regular Corporation. S-Corporations, however, do not have many of the fringe benefits that regular Corporations do.
Quick Benefits List:
- Tax Savings
- Asset Protection
Ownership
A Corporation is owned by its shareholders. Shareholders can be individuals or other entities such as another Corporation, trust or a Limited Liability Company. Although a Corporation usually has more than one owner, it is possible for only one individual to create and own 100 percent of the Corporation.
Tax
An S-Corporation is a pass-through entity. This means profits and losses pass through to the shareholders
Asset Protection
The owners or shareholders of a Corporation cannot be held personally liable for the actions of the business except in the case of outright fraud. If the Corporation is properly established and maintained, the individual shareholders are not personally liable for the losses of the business and creditors may only look to the Corporation and the business assets for payment.
Disadvantages
There are certain restrictions that must be met to qualify as an S-Corporation:
- 100 or fewer shareholders.
- You can only issue one class of stock.
- Shareholders must be U.S. Citizens or U.S. residents, estates, certain trusts, banks and certain exempt organizations, not C-Corporations.
- If you are a greater than 2% shareholder of an S-Corporation, certain benefits available to you may be limited.
Uses
To raise capital.
Business operation.