Why S Corporate Status Makes Sense for A Number of Small Businesses
Most business owners choose to initially choose to form as a sole proprietorship because it costs less and there is less bureaucracy. However, many also switch to either a C corporation or a limited liability company (LLC) at some point in order to benefit from additional protections. While we have previously discussed the advantages of having an S corporation, we have not specifically discussed why small businesses may want to initially form as an S corporation, which provides a number of unique benefits, especially to startup companies. Below we discuss the characteristics and benefits of each classification: C Corporations C corporations provide the most protection from liability for both shareholders and business owners because they allow the businesses to exist as separate entities. Because the C corporation is a legally separate entity, any legal repercussions have no bearing on the individual owner(s)’ personal assets. It also offers a significant amount of flexibility when it comes to buying and selling stock shares, offering employees stock options, and allowing for an unlimited number of shareholders; amongst other benefits. While dividends are taxable as income, business expenses, employee benefits, and retirement plan expenses are tax deductible to the company. C corporations can be costly due to a number of filing fees that must be paid, and the steps to form a C corporation can also be elaborate. Specifically, the following is required: Corporate bylaws; Articles of Incorporation (filed with the state); Employee Identification Numbers or Tax ID Numbers; and A Board of Directors, which the owners regularly meet with and where minutes are kept of meetings. Limited Liability Companies The limited liability company (LLC) is another popular business structure. An LLC also provides the owner(s) with protection from liability and is responsible for its own finances. It also involves very little paperwork to set up, a Board of Directors is not required, the owners make the decisions (after filing the Articles of Organization with the state), and an Employee Identification Number is still required. Perhaps most importantly, when it comes to an LLC, there are choices as to how the owners want to be taxed. The LLC is what is known as a pass-through entity, which is similar to a sole proprietorship or partnership. Members can decide to have the company taxed as a C corporation or they can have profits and losses passed through to them and claimed on their personal tax returns. S Corporations Another option is the S corporation. S corporations retain the same liability protection of the C corporation and LLC, however, they are not taxed at the corporate level because they are subject to pass-through taxation. S corporations also provide income-splitting benefits for the owner(s): Owner(s) can take a reduced salary and taking the remainder in the form of dividends, which are not subject to self-employment tax, only income tax. That being said, S Corporation status is not necessarily beneficial to companies with high earnings, and there are limits as to the number of shareholders they can have. However, when it comes to small businesses and startups, losses can be written off on clients’ personal tax returns, which can provide significant benefits. In order to qualify for S corporate status, The business has to be an LLC or United States corporation; Every shareholder must consent to it being an S corporation; Every shareholder must be a citizen or permanent resident alien; The company is limited to 100 shareholders or less; The company can only have one class of stock; and Shareholders must be certain qualified trusts, estates, or individuals. Contact Our Florida Business & Corporate Law Attorneys to Find Out More In general, it is usually recommended that businesses start as LLC is because the structure is so simple and flexible. As the company grows, shifting to S corporation status usually makes more sense. It is typically easiest to simply elect to file your LLC is an S corporation, while noting that you can always refer back to an LLC. For more information on business and corporate law—including business formation—contact our experienced Tampa business & corporate attorneys at HD Law Partners today. Resource: https://cpapracticeadvisor.com/small-business/article/21106764/why-small-businesses-may-want-to-consider-electing-s-corp-status If You’re Thinking of Switching from an S to C Corporation for Tax Benefits, You Should Consult an Experienced Business Formation Attorney First Posted in Business Corporate | No Comments » Connect with us Archives May 2026 April 2026 March 2026 February 2026 January 2026 December 2025 November 2025 October 2025 September 2025 July 2025 June 2025 January 2025 January 2024 December 2023 November 2023 October 2023 September 2023 August 2023 July 2023 June 2023 May 2023 April 2023 March 2023 February 2023 January 2023 December 2022 November 2022 October 2022 September 2022 August 2022 July 2022 May 2022 April 2022 March 2022 November 2021 October 2021 September 2021 August 2021 July 2021 May 2021 April 2021 March 2021 February 2021 January 2021 December 2020 November 2020 October 2020 August 2020 July 2020 June 2020 May 2020 April 2020 March 2020 February 2020 January 2020 December 2019 November 2019 October 2019 September 2019 August 2019 July 2019 June 2019 May 2019 April 2019 March 2019 February 2019 January 2019 December 2018 November 2018 October 2018 September 2018 August 2018 July 2018 June 2018 May 2018 April 2018 March 2018 February 2018 January 2018 December 2017 November 2017 October 2017 September 2017 August 2017 July 2017 June 2017 May 2017 April 2017 March 2017 February 2017 January 2017 December 2016 November 2016 October 2016 November 13 Categories Alimony Appellate Arbitration Auto Accidents Auto Insurance Business Corporate Business Insurance Law Child Custody Child Support Criminal Law Divorce Family Law FEMA Insurance Payments Florida’s Mandatory 2‑Hour Legal Professionalism CLE: Foreclosure Defense Fort Myers Hurricane Insurance Attorney General Guardianship HD Law Partners Service HOA/Property Management Homeowners Association Homeowners Insurance Hurricane Claims Hurricane Insurance Insurance Bad Faith Insurance Claims Insurance Defense Insurance Litigation Landlord Tenant Law Enforcement Liability Loan Modifications Mold Water Damage Parental Rights Paternity Personal Injury Premises Liability Law Prenuptial Agreements Private Security Property Distribution Property Owner Law Sarasota Insurance Litigation Attorney Slip Fall Tampa Business and Corporate Attorneys tampa family attorney Tampa Insurance Attorneys Timeshare Timesharing Uncategorized HD Law Partners is proud to be your trusted full-service law firm Quick Links Property & Casualty Business & Corporate Litigation Family Law Contact Us Careers Get In Touch 2002 North Lois Avenue Suite 510 Tampa, FL 33607 813-253-5333 Contact Us