An S corporation (S-Corp), also called a subchapter S corporation, is a type of business organization that is structured like a corporation but taxed like a partnership. Find the applicable law in Chapter 1, Subchapter S, of the Internal Revenue Code. S-corps do not have to pay corporate income taxes. Instead, include the company’s profits and losses in the tax filings of the individual shareholders. To qualify as an S-corp, a company must be a domestic entity. The company must also have no more than 100 shareholders. The company must meet other specific requirements.
Advantages and Disadvantages of a S Corporation (S-Corp)
The primary advantage of the S-corp is the tax benefit. S-corps do not have to pay corporate income taxes. Also, it offers owners limited liability protection with the S-corp status. On the other hand, establishing an S-corp can involve significant legal and accounting costs. And S-corps are only allowed to issue one type of stock (typically common stock), which can limit the entity’s ability to raise capital.
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