The Pros and Cons of S Corporations
To determine whether S Corporations is good for your business or if it is good especially if you want to start a new business or change from sole proprietor to general partnership there are some factors that can be affected and these are shareholders numbers, taxes, and asset protection. Limited Liability Companies LLCs, C Corporations and S Corporation is the three selections for people who want to incorporate their business.
LLCs, S Corporations and limited partnerships are corporations that chose to pay their taxes like flow-through entities. There is no risk of double taxation since shareholders are assisted in their payment of taxes on a personal level, not on the corporate level through the ‘S Election’ that is found in IRS code. So if you would like to know if the right entity structure either in general partnership or sole proprietorship, the answer is no. The reason being that there is no asset protection offered and it is easy to lose personal effects in a law court.
The advantages of S Corporations have incorporated limited liability to the management and shareholders. There are not requirements on your residency or in management. There is a court of law that is helpful in the personal liability protection in the event you may lose personal belongings like your car, nest egg or home. Shares could be sold or seized by a court order which makes it a disadvantage at the shareholders level.
A legal entity can be brought to live after a document has been filed at the start of a corporate formation which will have a name, an IRS tax or business purpose. The corporation will oversee the business activities, and this protects the shareholders or owners. It is advisable to form an S Corporation should you at one point decide that you would like to go public.
There is no self-tax for business owners which is their benefit. There is a core gain on taxation for S Corporation in that shareholders do not have to pay a self-employment tax on the businesses share profits. However, they will be taxed on themselves. These taxes are nonetheless subjected to social security and medicare where the corporation pay have, and the other half is paid by employee. The savings that are made as a result of no tax on self-employment and only come in as soon as the S-corp is making a considerable return and that there are some profits that can be paid after the statutory have been paid.