S-Corporation

Advantages of the S-Corporation

CPA and Attorney’s across the country have been recommending that small business owners for years operate their company as an “S” Corporation.  Depending on your specific case you may want to consider this type of business entity.

One consideration to look at is the issue of double taxation.  "S" corporations allow the profits and losses of a corporation to flow directly through to the owners/shareholders of the corporation.  All of this takes place without taxation at the corporate level.  This eliminates the potential for double taxation.  Double taxation of a "C" Corporation occurs when the corporation has its profits taxed initially, and then the dividends paid out to shareholders are taxed again on the personal level. 

There are certain qualifications that the corporation must meet in order to elect S-corporation status.

1. It must be a domestic corporation formed in the USA.
2. It may have no more than 100 shareholders.
3. It may only have individuals, estates or certain trusts as shareholders.
4. It may not have nonresident alien shareholders.
5. It may only have one class of stock.
6. It must be a small business corporation (financial institutions such as banks, insurance companies, building and loan associations or mutual savings and loan association cannot take advantage of electing S-corporation).
7. It must conform to state statutory restrictions, which limit the transfer of shares/ownership, of the company.

An S-corporation operates on a December 31st calendar year ending.  However, as with most rules there are exceptions. 

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