S Corporation Information
"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
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
DISADVANTAGES OF AN S CORPORATION
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
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.
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
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