Is an S corporation Beneficial for Your Business

You might have incorporated your business to take advantage of the limited liability it will grant you and your assets. At this point, you might be asking yourself whether it is wise for you to incorporate your business as a Small Business Corporation rather than a regular C. Applying for a subchapter S is another step you can take after incorporating or even if you are already operating the business as a sole proprietor. How would you know a subchapter S is for you?

• You want the limited liability protection of a C corporation, but don't want its corporate tax structure.
  
  As a C or an S corporation, the business is separate and distinct from its directors, officers and shareholders. Its liabilities are separate from theirs. It means that their assets are protected from being dragged into corporate mess or used to satisfy corporate liabilities. But one of the consequences of incorporating under a C is: the business has to pay taxes based on corporate tax structure. You pay directly to the government and get taxed for both income and dividends. Under an S, you can "pass through" losses and profits into your personal income tax and be taxed only for that. Passing through the losses would have allowed you to offset income from other sources. Visit www.irs.gov for all about tax and the S corporation.
• You plan to operate the business small. S corporations are limited 75 shareholders.
• Part of your overall plan for the business is to eventually sell it. Taxable gain on the sale of an S corporation is lower than a regular corporation.

What should you be willing to face?

A possible less control over the company because an S corporation is limited to issuing one class of stock only. This could also impose limitations on the stock value. Also, as such, finding venture capitalists might be a little hard to come by. You also have to comply with additional requirements such as filing Form 2553 with the IRS, holding regular meetings and keeping company minutes, limiting your shareholders to American residents, and keeping a domestic company status.

See the filing requirements for status change with www.irs.gov.