S-Corporation

What Is An S-Corporation?

All Corporations start out as a regular Corporation. By filing form 2553 with the IRS you are electing to meet the requirements for an S-Corporation. Essentially, an S-Corporation is treated like a partnership for tax purposes, but it has all the limited liability protection of a regular Corporation. S-Corporations, however, do not have many of the fringe benefits that regular Corporations do.

Tax: 

An S-Corporation is a pass-through entity. This means profits and losses pass through to the shareholders.

Asset Protection:

An S-Corporation provides the same liability protection as a regular C-Corporation.

Quick Benefits List:

  • Tax Savings

  • Asset Protection

Disadvantages:

There are certain restrictions that must be met to qualify as an S-Corporation:

  • 100 or fewer shareholders

  • You can only issue one class of stock

  • Shareholders must be U.S. Citizens or U.S. residents, estates, certain trusts, banks and certain exempt organizations, not C-Corporations

  • If you are a greater than 2% shareholder of an S-Corporation, certain benefits available to you may be limited.

FAQ's

  1. What is an S-Corporation?

    An S-Corporation is formed when you file for a regular corporation at the state level, then file the appropriate documents with the IRS, requesting to become an S-Corporation.

  2. When Should I Form a Business Entity?

    If you operate a business, even a home-based or part-time business, or if you are thinking of starting a business, then the time to incorporate is now. Incorporating or forming a Limited Liability Company helps separate your personal liability from your business liability while offering additional tax saving benefits.

  3. Who Can Form a Corporation?

    It does not matter if you are going to be the sole shareholder, director, officer or employee, you can form a Corporation. If your Corporation is structured correctly, you can take advantage of many of the same benefits as Fortune 500 Companies.

  4. How Do I Know If The Name I Want For My Company is Available?

    You can call 1-800-648-0966, and we can run a quick check to see if the name is available. In some cases, if the name is taken, we can help make a few simple changes that will allow it to be filed.

  5. When Should You Not Incorporate?

    If you are starting a business or you’ve been in business for a while, then the time to form a company is now. It doesn’t have to be an S-Corporation, but it should be some type of entity that will provide liability protection. Running your business as a Sole Proprietorship is risky. As a sole proprietor you are taking on the full burden of debt, liability risk and litigation.

    Our expert staff is here to help. Please give us a call at 1-800-648-0966 and allow us a few minutes of your time to discuss your business plans. We can assist you in outlining some options in choosing the right entity.

  6. When Do I Know It’s Time To Incorporate?

    If you are starting a business or you’ve been in business for a while, then the time to form a company is now. It doesn’t have to be an S-Corporation, but it should be some type of entity that will provide liability protection. Running your business as a sole proprietorship is risky. As a Sole Proprietor you are taking on the full burden of debt, liability risk and litigation. 

  7. How is an S-Corporation Taxed?

    S-Corporations are taxed as a pass-through entity. This means that the profits and losses of the company are passed through to the owners and declared on their personal taxes.

  8. Who Can Own An S-Corporation?

    Once the company has formally filed with the IRS for S-Corporation status, there are restrictions on who can own the stock. The shareholders cannot be non-resident aliens, you are restricted to 100 or less shareholders and you can only issue one class of stock.

  9. Can An Individual Form An S-Corporation?

    There aren’t any restrictions on how many people own or operate a company. You can be the only director, shareholder, officer and employee. Even as a single Corporation you are still required to follow the same rules and regulations as stipulated by the By-Laws, state and federal requirements. 

  10. Where Should I Incorporate?

    It is not required that you incorporate your business in the state in which it operates. Small businesses just starting out will most likely choose to incorporate in the state in which they transact a majority of their business. Others will choose to take advantage of a preferred state such as Nevada. 

    In deciding in which state it is best to incorporate, consider:

    • A particular state's regulatory climate
    • Tax requirements
    • Need for individual privacy
    • The cost of filing fees
    • Statutory law that favors business

    Why would you choose Nevada over just simply forming a Corporation in your home state? Nevada is continually ranked the number one state in which to do business and has some of the most aggressive pro-business laws in the country. Nevada incorporated over 50,000 companies last year, and 60% of those have officers and directors who live outside the state of Nevada. 

    Let's take a closer look at how Nevada encourages economic growth and how you can profit from this environment. 

    • A corporate commission does not regulate Nevada. 
    • There is no requirement to disclose to the state the date appointed for the next annual meeting of stockholders for election of Directors. 
    • You do not have to disclose in your annual report the location of principal places of business  outside of Nevada. 
    • You do not have to report the transference of stock to the state. 
    • The annual filing fee is relatively low. 

    If you want to take advantage of the pro-business state of Nevada but you transact most of your business in another state, you need to qualify your Nevada company to do business in that state. This usually includes paying a small fee, which to most business owners is small potatoes compared to the benefits you get from forming your Corporation in a preferred jurisdiction.

  11. How to Incorporate?

    1. Choose the type of entity - Call 1-800-648-0966 for a complimentary consultation. 

    2. Choose a name - Laughlin will run an initial name search to make sure it’s available. 

    3. Choose which state - Call 1-800-648-0966 for a complimentary consultation. 

    It is important to work with a trusted company, one that has been in the business for years and understands the importance of doing it right from the start. The biggest mistake you can make is to form a Corporation with a discount broker who is more interested in collecting a fee than assisting their clients to make the right choice. 

    At Laughlin Associates, our number one goal is to make you a client for life, which means we have one chance to do it right. Laughlin has been assisting small closely-held corporate owners to reach their financial goals for over 40 years. The amount of time and money you will spend to clean up a company that was not started properly will cost you more in the long run than going to a reputable company in the beginning, like Laughlin Associates. 

    When you incorporate with Laughlin Associates, our service does not stop there. You will have access to your own highly trained business strategists Monday through Friday, 8:00 a.m.-5:00 p.m. PST, who are available to assist you every step of the way. 

    We love to talk with business owners who are serious about their businesses and excited to take their business to the next level. Feel free to give us a call at 1-800-648-0966, complete our getting started form, or use our Live Chat feature to get immediate assistance online. 

    All that we do is submitted and performed with the understanding that we are not engaged in rendering legal, accounting or other such professional service. If legal advice or other expert assistance is required, the services of a professional should be sought.

Entity Comparison Chart

The following table provides a look at the LLC vs Corporation, and LLC vs S-Corporation. Tax comparisons can be found in the lower portion of the table.


C-CORPORATION

View the Details Incorporate Now

LLC

View the Details Incorporate Now

S-CORPORATION

View the Details Incorporate Now
Type of
Organization

Stock, there may be different classes.

Membership interests. There may be different classes of membership. One class of stock. Which may be voting or non-voting.
Eligible Owners No restrictions. No restrictions. 100 shareholder limit. No non-individual and no non-resident alien shareholders.
Management Managed by director(s) and officer(s). Two Management Types
- Managed by Manager
- Managed by Members
Managed by director(s) and officer(s).
Allocations of Ownership None. Dividends must be paid based upon stock ownership. Permitted if the allocations have substantial economic effect. None. Income, gain, and loss pass-through to the shareholders based on the percentage of shares owned.
Liability Protection There is limited liability for shareholders, officers and directors. There is limited liability for members and managers (if applicable) There is limited liability for shareholders, officers and directors.
Duration Perpetual Dissolves at the time specified in the Operating Agreement or upon the loss of a member unless other members agree to continue. Perpetual
Transfer of Ownership Shares freely transferred. There may be restrictions under certain state laws. Shares can be transferred only to eligible S-corporation shareholders

All that we do is submitted and performed with the understanding that we are not engaged in rendering legal, accounting or other such professional service. If legal advice or other expert assistance is required, the services of a professional should be sought.

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