S Corporations

The two main kinds of corporations are C corporations and S corporations. C corporations are often large, publicly held companies. They are liable for double taxation. This is because C corporations are first taxed on profits, and then any individual shareholder that’s paid in dividends will be taxed. This generally makes S corporations ideal for smaller businesses. S corporations are an effective tool in insulating share holders from corporate debt.

There are certain requirements that an S corporation must meet. They are as follows:

• S corporations must be domestically owned.
• S corporations cannot be affiliated with any larger c corporation. This means that if you are upstreaming income you cannot have an s corporation that is managed by a c corporation.
• S corporations can have no more than 35 shareholders.
• S corporations can only have one class of stock.
• S corporations can have no foreign or non resident alien can be a shareholder.
• S corporations cannot have another corporation or partnership as a shareholder.

The main characteristics of S corporations are:

• Profits and losses can only be allocated in proportion to each shareholders interest in the business.
• You cannot deduct corporate losses that exceed the basis in your stock. So basically you cannot deduct losses that exceed you investment.
• There are no fringe benefits available to the employees as with a c corporation. Examples include educational scholarships and medical reimbursement plans.
• They enjoy limited liability yet they are taxed as a sole proprietor or partnership. The profits pass through the corporation to the owners and are taxed on personal income tax returns.

Log onto to Pathfinder Business Strategies to create your own S corporation today. With all of the liability you possess you can’t afford to wait.