Business Structures, S-Corporations

In the past week we have covered two of the most common forms of businesses entities within the United States, the sole-proprietorship and partnership. Continuing on our series on business structures and how they can effect business owners, this part will explore the concept of the subchapter S corporation.

S-corporations are a sort of mix between your large business that may be a C-corporation and the small, closely held business. S-corporations are pass-through entities like sole-proprietorship or partnership, meaning that they are able to apply the 199A deduction if they qualify. A benefit of the S-corporation is it has an easier structure than a C-corporation due to the smaller nature.

Another benefit of S-corporations is that they are similar to C-corporations in the liabilities aspect. They are typically structured by stock issued to owner(s) and this creates the wall of liability for those individuals; however, unlike a C-corporation, an S-corporation is limited to 100 shareholders maximum. This is different than C-corporations who may have millions of shareholders. Another limitation of the S-corporation is that it may only issue one class of stock.

S-corporations also must have annual meetings and elect certain positions to members. This may sound complicated, but S-corporations can be solely owned and the owner just elects themselves to the major positions.

Deciding on your business structure for your business is key to creating a viable work experience for you and your employees. Proper planning can limit liabilities and taxes, if you have questions contact the Center for Financial, Legal & Tax Planning, Inc.