An S corporation is a corporation that has obtained an additional status at the IRS. There are restrictions as to who may file as an S Corporation. - It must be a domestic company
- S corporations cannot have more than 100 shareholders
- None of the shareholders can be nonresident aliens
- Only one class of stock can be issued by the business
- The business cannot be any of the following: a bank or thrift institution, insurance company, a domestic international sales corporation, or a possessions corporation
- The tax year for the business has a natural business year, and a ownership tax year.
- All shareholders must agree to the S Corporation structure formation.
- Profits and losses must be allocated to shareholders proportionately to each one's interest in the business.
Advantages to forming S Corporations Corporations that have obtained S Corporation status can avoid the double taxation (once to the shareholders and again to the corporation) that regular corporations face. Similar to a C corporation (regular corporation)? S corporations also provide you with liability protection. Liability protection refers to the separation between yourself and the business, so that you as an individual are not held responsible. For example if the business is sued your personal assets would not be in danger. However, S corporations are still required to maintain of the same record keeping requirements corporations must follow. When forming a new business there are many options to choose from, make sure you speak to a professional in regard to finding out what is best for your business. |
