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S Corporation Information



An "S Corporation" is a corporation which is taxed under Subchapter S of the Internal Revenue Code and must elect to do so shortly after the corporation is formed with the IRS. A corporation is a legal and tax entity by itself. It is similar to a person in that it has its own assets and its social security number, called a Federal Tax Identification Number. The shareholders of a corporation must agree to elect to be an S corporation shortly after incorporating.

Like other businesses, a S corporation needs to have a license to do business in towns in which it has offices and may use an assumed name, so that Blow Inc. could operate as Blow Holes.

A corporation's assets or ownership is easily transferred through sale of the assets or sale of stock.

The death of the shareholders or directors or officers of a corporation has no effect on the existence of the corporation. A corporation must be legally dissolved to terminate.
 

ADVANTAGES OF AN S CORPORATION

 


The primary advantage of forming a corporation is that it is a separate legal and tax entity from its owner(s). Be sure to always consult your accountant since tax laws change with time and jurisdiction. If you form a corporation, the corporation will grant you shares. As a shareholder, you are not liable for the debts or acts of the corporation as long as you obide by the corporate procedures required by law. The most you can lose as a shareholder is the amount you have paid for your shares. This means that if the corporation is sued and losses, they cannot take your home and your personal car and assets.

Another advantage is that you are regarded as more professional and business-like if you are a corporation. Venture capital and investors usually prefer to invest in corporations as they provide the most flexible and consistent procedures for business and investment.

If you are a S corporation, you are not subject to the double taxation which can occur when a corporation pays income tax and then shareholders pay tax on dividends as well. There are also other tax benefits.


 

DISADVANTAGES OF AN S CORPORATION

 


An S corporation may have no more than 100 shareholders, may have only one class of stock, may not own more than eighty percent of another corporation, and may not have shareholders who are not US citizens or resident aliens. The costs and effort of maintaining a corporation are higher than some other business forms due to legal requirements about an annual shareholder meeting, corporate minutes and other procedures which must be followed. Also, a corporation which has an office in a state other the one its incorporated in must register as a foreign corporation in that state. The cost of incorporation, maintaining an agent for service (a person to receive legal documents required by law), registered as a foreign corporation and upkeep of corporate procedure documents is higher than some other forms of business.




Readers are cautioned not to rely on this article as legal advice as it is no substitution for a consultation with an attorney and an accountant in your jurisdiction. Based on jurisdiction and time, the law varies and changes.


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