S corporations are exempt from having to hire staff, but they are required to have at least one shareholder who is a living individual, a trust, or an estate. Owners of the corporation are its shareholders, who may be either persons or other legal entities. The number of stockholders for a S company can also be large—up to 100.
Therefore, articles of incorporation are not necessary for a S company. A corporation’s existence is formally declared via its articles of formation. They describe the goals, organization, and ownership of the corporation. S corporations are required to submit their articles of incorporation to the state where they were formed. The company’s name, address, and purpose must all be specified in the articles of incorporation, which must also adhere to state regulations.
An S corp’s formation can take a few weeks to a few months. The procedure entails a number of stages, such as naming the business, submitting the articles of incorporation, acquiring any relevant licenses and permissions, and choosing the S corp status with the IRS. The complexity of the company’s structure and the state in which it is formed can both affect how long it takes to establish a S corp.
If a single-member LLC satisfies the requirements, it may elect S corp status. The LLC must be a domestic entity, have just one member, and adhere to all IRS qualifying requirements in order to be considered. The IRS must receive Form 2553 from the LLC in order for it to choose S corp status. The LLC can benefit from pass-through taxation advantages of a S corp by choosing S corp status.
The tax treatment of a S corp and a single-member LLC is the primary distinction between the two. A single-member LLC is often taxed as a sole proprietorship or a disregarded entity, which means that the owner’s personal tax return must include the company’s income and losses. The profits and losses of a S corp, on the other hand, are distributed to the shareholders and reported on their personal tax returns despite the fact that it is taxed separately. S corporations are also subject to limitations on things like the number and kind of shareholders they can have and the kinds of stock they can issue.
The bottom line is that a S corp can exist without any employees but must have at least one shareholder. It can take a few weeks to a few months to establish and is also necessary to have articles of incorporation. If it satisfies certain criteria, a single-member LLC may elect to be treated as a S corp. The primary distinction between a S corp and a single-member LLC is how taxes are handled.
Because it can offer the owners certain tax advantages and liability protections that they might not otherwise be able to obtain if they were taxed as a sole proprietorship or partnership, an LLC might prefer to be treated as a corporation. For instance, paying corporate taxes might assist safeguard the owners’ personal assets in the event that their company is sued or goes bankrupt. Furthermore, corporations might be eligible for tax breaks and credits that aren’t available to other kinds of enterprises.
Yes, you are regarded as self-employed for tax purposes if you own a S Corp. But how you pay yourself and your tax obligations can vary depending on whether or not your S Corp employs employees. In order to avoid IRS inspection if your S Corp has no employees, you might need to pay yourself a fair income. The best way to decide what to do in your particular case is to speak with a tax expert.