Sub Chapter S Corporation Lawyer in Greenville, SC
Business owners that would like to incorporate without the intention of going public, an S-Corp may be the right option. However, the tax-status of an S-Corp significantly limits who may be a shareholder, the number of shareholders, and the stock classes that can be offered.
Weighing the positives and negatives of an S-Corp can be daunting for business owners. Each entity type has its merits depending on your goals for your company and the way it operates. Discussing your options with an experienced business lawyer at The Law Office of James Stone Craven, LLC allows you to make an informed decision.
What is an S Corp?
S corporations are ordinary business corporation that elects to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. The term “S corporation” means a “small business corporation” which has made an election under § 1362(a) to be taxed as an S corporation. Essentially, an S-Corp is a pass-through tax entity. S corporations pay no federal income taxes. Instead, the S corporation’s income or losses are divided among the shareholders and reported on individual income tax returns.
Requirements to Qualify as an S-Corp
In order to qualify as an S-Corp under current IRS regulations, your small business is required to meet the following requirements:
- It is a US Based corporation;
- There are less than 100 shareholders;
- There is only a single class of stock
- Membership is limited to eligible shareholders; including individuals, certain trusts, and estates.
Advantages of S-Corps
There are quite a few benefits to incorporating a business as an S-Corp. The following are the three of the most important advantages to small business owners:
- Tax Savings. Income is passed directly to shareholders, so they avoid double taxation.
- Existence Independent of Shareholders. The company is a legal entity separate from the shareholders, which means that the lifespan of the company survives any shareholder that wishes to abandon its investment.
- Liability Protection. Since the company is a separate legal entity than the owner, their fiscal liability is seriously limited (although not totally eliminated).
If a business owner does elect to incorporate, they must file Form 2553 with the IRS in addition to a Certificate of Incorporation or Articles of Incorporation in South Carolina.