S-Corporation Overview

An S-corporation (sometimes called a “subchapter-S” or “small business” corporation) is a business structure that provides business owners with limited liability for corporate debts while also allowing the shareholders to pass company income through to their personal tax returns. The S-corporation is a very popular structure for small businesses.

S-Corporation Ownership Structure

The owners of an S-corporation are called shareholders. The shareholders elect a board of directors who provide governance and oversight to the company’s management team. The board also appoints officers to serve as the company’s executive management. These officers normally include a president, secretary and treasurer. Some small companies are structured as S-corporations, in practice, the owners of an S-corporation may serve as the company’s shareholders, board of directors and officers, as well as employees.

Note: S-corporations are limited by law to no more than 75 shareholders (husband and wife shareholders count as 1 shareholder for the purposes of this limit), and all shareholders must be US citizens or legal residents. Shareholders in an S-corporation may sell or transfer their stock at any time.

S-Corporation Taxation Overview

The income of an S-corporation is passed through to the personal tax returns of the company’s shareholders. The profits of the company are taxed at the shareholders’ individual tax rates.

LLC, C-Corporation, or S-Corporation?

Compare and choose the right entity for your new business.

 

LLC C-Corporation S-Corporation Partnership
Definition Combines elements of a corporation and a partnership. Separate legal entity with legal rights and liabilities that are different from shareholders (owners). Separate legal entity with legal rights and liabilities that are different from shareholders but that offers tax advantages by the IRS. Two or more people owning and operation the business preferably with a partnership agreement.
Number of Owners No limit No limit on shareholder 100 No limit
How to Start State regulated and Articles of Organization and required tax numbers. State regulated. Need Articles of Incorporations, bylaws and tax numbers. State regulated. Need Articles of incorporations, bylaws and tax numbers. Should have an agreement and required tax numbers.
Management Control Rests with management committee (owners or those shareholders). Rest with the board of directors appointed by the shareholders. Shared by owners shareholders. Shared by general partners according to partnership agreement.
Taxation Taxes can be assessed several ways based on the structure of the company but is taxed once. Profit is taxed to the corporation and then dividends to owners are taxed again. Profits from the company are taxed once. Profits are split among owners. Profits from the company are taxed once. Profits are split among partners based on partnership agreement.
Personal Liability Liability limited to corporation assets unless a personal guarantee is signed. Liability limited to corporation assets unless a personal guarantee is signed. Liability limited to corporation assets unless a personal guarantee is signed. General partnership personal assets are at risk, limited partnership.
Transfer of Ownership Yes Yes Yes Based in partnership.

Frequently Asked Questions

Our experts answer all important questions.

What is a Subcharter Corporation?

The S corp is a change of the tax code that congress enacted into law in 1958, primarily, to give a competitive leg up to small businesses.The subchapter or small-business corporation, commonly referred to as S corp, is a very popular hybrid business structure that provides both limited liability protection and pass-through taxation.

Apart from some restrictions, S corps function in much the same way as C corps, i.e., they establish articles of incorporation, hold annual meetings, and publish minutes, to name a few.

How does an S corp differ from other business structures?

By limiting the number of shareholders and stipulating that the business must be domestic, S corps are different from traditional C corporations and LLCs, both of which can expand internationally and place no limit on the number of members.In addition to its structural limitations, S corps have the following features:

  • Pass-Through Taxation
  • Limited Liability Protection
  • Freely Transferable Stock

What are the advantages of becoming an S corp?

  • Asset Protection
  • Tax Advantages
  • Easy Transfer of Ownership

What are the disadvantages of becoming an S corp?

While the S corp offers distinct tax advantages and ease of transferability, it is not the right choice for everyone. Here are some of the chief disadvantages of becoming an S corp:

  • Restrictions on shareholders
  • Restrictions on the class of stock offered
  • Restrictions on company growth
  • Red tape, and lots of it

How do I get started?

Quickly complete our convenient online order form, which collects all of the necessary information, and only takes a few minutes. Please contact us by email or phone, if you have any questions or would like help getting your order processed.

What happens if the company name I want is not available?

We request that you provide up to three name choices when you order. The name is selected based on your priority and availability. If all three names are not available, we will contact you for additional name choices.

What happens if I change any of my information after my order is complete?

Depending on the type of information that is changing. Some information, for example, company’s name, business purpose, number of shares and/or par value (for corporations), must be changed with the state by filing an amendment. The state filing officially updates the information the state has for your registered company.If you have any questions on whether specific information in your state-filed documents would need to be updated by means of an amendment filing, contact our office.

What if there is an error on my state-filed documents?

We are confident in our ability to provide accurate filings. We review each order we receive to identify potential errors. In the unlikely event that an error is made, We’ll respond promptly to remedy any error.We warranty our filing services against defects caused by us for the life of your company. We will absorb any fees/costs necessary to correct the error and will correct the mistake as quickly as possible.

If, on rare occasions, the state makes a mistake in entering your information. If you notice an error, contact us immediately and we will work directly with the state to correct it.

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