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.

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

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LLC

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S-CORPORATION

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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

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