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S- Corporation is a hybrid of the C-Corporation and a partnership. It is set up like a C-corporation with a Board of Directors and shareholders; however it has the option to be taxed like a partnership. Passing the profit or losses on to the shareholders, where it is only taxed once.


The inherit benefit of any form of incorporating is that it shields the shareholders (owners) from personal liability arising from business debts and business lawsuits. Our affiliate can assist you in building corporate credit for your company.


Advantages

  • Limited Shareholders- An S-corporation can have up to 75 shareholders (Individuals or couples, not other corporations or LLC’s)
  • Ease of Transfer – Stock can be sold or otherwise transferred fairly simply.
  • Separate Legal Existence – The Company can create its own credit, shielding the stockholders from liability.  (Our affiliate can help you establish corporate credit quickly)
  • Centralized management – The Corporation is ran by a Board of Directors, and elected officers. The owners are the shareholders who may or may not be the Board or officers.  
  • Continuity of life – As an entity of its own, the corporation is in effect until dissolved. It is not based on one person’s life.
  • Accounting choice - can use either cash or accrual method of accounting.
  • Passive Income – S- Corporation is the only status that can earn up to 25% passive income.
  • Avoid double taxation – The S-Corporation allows shareholders to receive profits free of taxation at the corporate level. These profits will only be taxed at the individual level.

Disadvantages

  • Required to hold annual Board of directors and Shareholders meetings.
  • Limited shareholders and limited to only one class of stock.
  • Limited losses – shareholders may not be able to deduct all losses allocated to them because it depends on their extent of ownership in the corporation.
  • Limited to calendar year as tax year, unless it can establish a reasonable business purpose for having a different fiscal year.
  • Fringe benefits – Considered taxable compensation for shareholders.

 

Tax Implications


•        Required to file IRS form 2553 “sub chapter S election” where no taxes would be imposed, the shareholders would then file their own schedule E forms on their personal 1040.

 

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The above information is compiled for your convenience from our research of other publications including State and Federal agencies.  Vision Interface can not give legal advice, nor do we claim to be CPA’s or attorneys.

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