A company structure called a S corporation, sometimes referred to as a Subchapter S corporation, is created to offer the advantages of both a corporation and a partnership. The corporation is not subject to corporate level taxation because this type of organization permits the pass-through of income and losses to shareholders. Instead, earnings and losses are disclosed on the stockholders’ individual tax filings. What does the S stand for in S Corp?
S stands for small business in S corporations. This is so because small firms that fit specified requirements are the only ones for whom the S corporation structure was created. A company must be incorporated as a domestic corporation, have no more than 100 shareholders, and all of those owners must be citizens or residents of the United States in order to qualify as a S corporation. Why would you pick a S corporation, exactly?
The ability to transfer revenues and losses to shareholders is one of a S corporation’s key benefits. Because of this, the corporation is not subject to corporate taxation, which can save stockholders a lot of money on taxes. Furthermore, a S corporation gives shareholders limited liability protection, which protects them from being held personally responsible for the debts and obligations of the company.
However, selecting a S corporation has its drawbacks as well. For instance, S corporations may be less adaptable than other corporate structure types because of constraints on ownership and structure. S corporations must also file annual tax reports and keep a specific number of records, both of which can be time-consuming and expensive.
Should I register as a C-Corp or an S-Corp? Your particular business needs and objectives will determine whether you should register as a C-Corporation or a S corporation. Larger companies that intend to go public or generate money through the sale of stock should normally consider becoming a C-Corporation instead. On the other hand, S companies are better suited for small firms that seek the advantages of a corporation without the tax burden.
Let’s sum up by saying that a S corporation is a sort of corporate structure that enables the transfer of profits and losses to shareholders. An S corporation can be a suitable option for small firms that want the advantages of a corporation without the tax burden, despite some drawbacks including limitations on ownership and form. The ultimate decision regarding whether to register as a C-Corporation or a S Corporation will be based on the needs and objectives of your particular firm.