S Corporation
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S Corporation
An S Corporation is a special form of corporation (Note: The "S" in S Corporation refers to subchapter S of the tax code). S Corporations are based on C Corporations but they are not treated as a separate tax entity as C Corporations are. Instead, the income of an S Corporation is "passed through" to the personal income of its owners (shareholders) in proportion to their ownership interest.
An S Corporation is created by forming a traditional C Corporation and then filing the IRS form 2553 (The Subchapter S Election) for federal recognition of S Corporation tax status. While the S Corporation has many of the same features as a C Corporation, there are some important differences.
While the S Corporation features similar pass through taxation to an LLC, in the area of self-employment taxes an S Corporation can have an advantage over an LLC. The compensation (salary and bonuses) of S Corporation shareholders is subject to self-employment tax, but not on the profits automatically allocated to them as a shareholder.
S-Corporation Advantages
Limited Personal Liability
Perpetual Existence
Better Fringe Benefits
Pass-Through Taxation
S-Corporation Disadvantages
More Extensive Record Keeping Requirements
Restrictions on Number and Type of Allowable Shareholders
$149 Corporation Filing
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Entity Comparison Chart |
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| C Corporation | S Corporation | LLC | |
| Owners have limited liability for business debts and obligations | |
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| Created by a state-level registration that usually protects the company name | |
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| Business duration can be perpetual | |
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| May have an unlimited number of owners | |
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| Owners need not be U.S. citizens or permanent residents | |
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| May be owned by another business, rather than individuals | |
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| May issue shares of stock to attract investors | |
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| Owners can report business profit and loss on their personal tax returns | |
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| Permitted to distribute special allocations, under certain guidelines | |
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| Not required to hold annual meetings or record meeting minutes | |
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| Owners have NO personal liability for business obligations | |
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| Number of owners allowed | 1 to unlimited | 1 to 100 | 1 to unlimited |
| Management decisions made by... | Board of Directors | Board of Directors | Members |
| Raising Capital | Sale of stock & other permitted instruments | Sale of stock & other permitted instruments | From the members |
| Income Taxes | Paid by the corporation | Passed through & paid by the shareholders | Paid by members unless elect corporate tax status |
| Who Deducts Losses | Corporation | Passed through to the shareholders | Special rules apply - check with tax advisor |
| Taxation | Double; both the corporation and shareholders are taxed | Taxed Once | Taxed Once |
| Transfer of ownership | By stock transfer | By stock transfer | Most LLC Agreements require approval of members |
$149 Corporation Filing
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