While there are many ways to potentially organize your business, one often-overlooked option that can work for many companies is the so-called “S-Corp.” Depending on your circumstances, it can be a great way to minimize your legal liability and save on taxes, while still benefiting from the protections that a corporation provides. But what exactly is an S-Corp, and how do you know if it might be appropriate for your business?
What is an S-Corp?
“S-Corp” is the informal name for a type of corporation organized under Subchapter S of the Internal Revenue Code, which fits certain special requirements. Among other things, it must be a domestic corporation with no more than 100 shareholders and only one class of stock. In addition, it cannot have any shareholders that are themselves corporations, partnerships, or which are non-resident aliens (meaning they come from another country).
How Do You Form an S-Corp?
In order to form this type of business, you must first organize your company as a corporation, including filing articles of incorporation as normal. In addition, however, you must also elect to obtain S-Corp status by proving you meet the formal requirements by filing with the IRS. So long as you meet those legal requirements and continue to maintain them, you can get the benefits of an S-Corp.
What Are the Benefits of an S-Corp?
The primary benefit of this type of corporation is that it is considered a “pass-through” entity, meaning that the income earned by the company passes through to the company’s shareholders directly, rather than being distributed to shareholders via dividends. This means that it is taxed purely as personal income, rather than being subjected to the corporate income tax. This potentially allows you to enjoy the benefits of your company more, without fearing the risk of “double taxation.”
What Should You Do?
Ultimately, the question of whether an S-Corp is right for your business depends on your company’s circumstances. That is why you should speak to a lawyer with experience handling business law matters, including business organizations. They can review your situation and advise you on the best course of action for you and your business.
If you have an employment issue, give the Law Office of Andrew Ross Sack a call. Andrew Ross Sack is a New York and New Jersey employment lawyer who has considerable experience in handling the many aspects of labor and employment law. To schedule a consultation with New York City/Long Island/Westchester employment lawyer Andrew Ross Sack, call (516) 526-3319 or visit his contact page.
