S-Corporations is not a Statewide legal structure entity, but rather a tax election, that can be granted at the permission of federal tax law enforcement agency of the U.S. Federal Government.

 

John Kiritsis, Esq., CPA, MBA, MS, JD, LL.M

Kiritsis Law Group   

212 922 0005

 

An S-Corporation, also known as an S-Corp, is a type of small business entity that is separate from its owners and treated as a legal person under the law. S-Corporations are similar to C-Corporations in that they offer limited liability protection to their owners, who are known as shareholders. However, there are several key differences between S-Corporations and C-Corporations that can make S-Corps more attractive for certain businesses.

 

One of the main advantages of an S-Corporation is that it is generally not subject to double taxation. Unlike C-Corporations, which are taxed at the corporate level and then again on dividends or other distributions to shareholders, S-Corporations are taxed in a manner similar to partnerships and sole proprietorships. This means that the profits and losses of the S-Corporation are passed through to the shareholders and reported on their individual tax returns. This can result in a lower overall tax burden for the business and its owners.

 

Another advantage of an S-Corporation is that it allows for greater flexibility in the allocation of profits and losses among the shareholders. In a C-Corporation, profits and losses are distributed based on the percentage of ownership in the corporation. However, in an S-Corporation, the profits and losses can be allocated in a way that is more beneficial for the shareholders, as long as it is reasonable and consistent with the percentage of ownership.

 

In order to qualify as an S-Corporation, a corporation must meet certain requirements set by the Internal Revenue Service (IRS). These requirements include having no more than 100 shareholders, having only one class of stock, and being owned by individuals, certain trusts, and estates. S-Corporations are also limited to conducting business activities that are permitted under Subchapter S of the Internal Revenue Code, which includes most types of business activities except for certain financial institutions, insurance companies, and certain foreign businesses.

 

In order to form an S-Corporation, the owners must file articles of incorporation with the state in which the corporation will be formed. The articles of incorporation must contain information about the corporation, such as its name, purpose, and the names and addresses of the incorporators. The corporation must also adopt bylaws, which outline the rules and procedures for running the corporation.

 

S-Corporations are governed by a board of directors, who are responsible for making strategic decisions for the corporation and overseeing its operations. The directors are elected by the shareholders, and they may or may not be shareholders themselves. The day-to-day management of the corporation is typically carried out by the officers, who are appointed by the board of directors.

 

Overall, an S-Corporation is a popular choice for small businesses that want to enjoy the benefits of a corporation while minimizing the potential for double taxation. However, it is important to consider the requirements and limitations of an S-Corporation before deciding whether it is the right business structure for your company.

 

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