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What are the Main Differences between an LLC and an S-Corp?

What Is a C-Corporation?

What Is an LLC?

What Is an S-Corp?

Which Type of Company Incorporation is Right for You?

 

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What Is an S-Corp?

When you’re establishing a business – setting up for yourself, as they used to say – you have a number of tax and legal structures from which to choose. Among them are the sole proprietorship, the partnership, the limited liability corporation (LLC), the C-corp and the S-corp. Of these, the S-Corp is the sole choice that depends wholly on an Internal Revenue Service election. In fact, you can even choose S-Corp status for an LLC. But we’re getting ahead of ourselves.

What Is an S-Corp?
An S-corp is a corporation whose owners choose the IRS designation, “Subchapter S.” Choosing this designation allows you to sidestep federal corporate taxation. Instead, your shareholders declare company profits – or losses -- when they file their personal tax returns. If you, as the owner/shareholder, also work for the company, the IRS requires that you pay yourself a salary. If that agency determines that your salary is unreasonably low, while the company earnings you report on your tax return are high, you might get into hot water.

Becoming an S-Corp
As you might imagine, with such tax benefits to hand, you have to jump through some hoops to be eligible for Subchapter S designation. First of all, your company must be a corporation. Rules for corporate filing vary by state, but typically, corporate status requires filing articles of incorporation with the appropriate agency, usually the state secretary of state’s office. You may also need to file by-laws, to include the schedule for shareholder meetings. Other steps may also be required.

In addition, your company can have no more than 100 shareholders. A married couple – an owner and her husband, for example -- is treated as a single shareholder under IRS rules. You cannot have another corporation act as a shareholder if you want to claim S-corp status. A non-profit organization, on the other hand, is considered an eligible shareholder.

You’ll need to get a tax ID number from the IRS. This number identifies you to the agency and is the number your accountant will use when she files your business tax returns.

Moreover, each one of your shareholders must notify the IRS that he has chosen the Subchapter S designation for the company. Whether they work for the corporation or not, all must file IRS Form 2553.

Of course, you’ll also have to get the proper licenses and permits for your business. The U.S. government, your state, city and even county may each have a separate set of licensing regulations. Abide carefully by all the rules that apply to your business and its location.

Taxation
Some states are not as liberal as the federal government when it comes to S-corp taxation. Consequently, if you live in a state such as Massachusetts, you might have to pay state taxes on profits that exceed a certain limit. If your business is in New York or New Jersey, you’ll have to file a state corporate tax return just as any C-corporation would.

An S-corp is a corporate structure that offers significant tax advantages. Consult knowledgeable legal and tax professionals to determine if the Subchapter S designation is appropriate for your business.

Woodlands board likely to select incorporation consulting firm this week

The Woodlands Township Board of Directors is moving forward with an evaluation of possible incorporation with board members likely selecting a consulting firm this week to help in the process. The township's Board of Directors is set to meet in a special ...

Published:  Fri, 19 Jan 2018 15:59:00 GMT



Research delivers insight into the building information modeling market

This research report analyzes the building information modeling market, with a focus on key firms in the industry such as Nemetschek, Autodesk, Inc., Bentley Systems Incorporation and Trimble Navigation Limited. Research By Markets adds "Global Building ...

Published:  Sun, 21 Jan 2018 10:28:00 GMT



Berlin incorporation informational meetings set

With the election less than one month away to decide if Berlin incorporates, two informational meetings have been set for early February. The meetings are set Feb. 1 and Feb. 6 at 6 p.m. at the Berlin Community Center. Patrick Bates and others involved in ...

Published:  Thu, 18 Jan 2018 07:43:00 GMT



SEC rescinds Rappler's incorporation papers

THE Securities and Exchange Commission (SEC) has revoked the incorporation papers of online news site Rappler, Inc. and its parent company for failing to meet the constitutional limits on foreign ownership, as investors closely monitor the ruling's ...

Published:  Mon, 15 Jan 2018 07:15:00 GMT



Incorporation of Ex-Combatants in Humanitarian Demining: Lessons from Colombia, Somaliland & Southern Somalia

As part of the peace effort between the Colombian government and the FARC, a pilot program was launched in 2015 allowing ex-combatants from the guerrilla to collaborate with Army soldiers in humanitarian demining-an urgent task given the country's ...

Published:  Thu, 18 Jan 2018 12:19:00 GMT



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