What are the Advantages and Disadvantages of an S Corporation?

An essential first step in starting any business is to evaluate the various types of business entities. An S corporation is one type of business entity you may want to consider when discussing your business goals with a Tampa business attorney.

An S corporation derives its name from Subchapter S of the IRS (Internal Revenue Service) Code and provides some of the same advantages as a C corporation. One advantage both business types offer business owners is limited liability protection, because shareholders are not liable in company lawsuits. As such, the corporations are separate legal entities formed by filing formation documents with the state, called articles of incorporation or a certificate of incorporation. Their structures are similar because both have directors, officers and shareholders. They both must adhere to the same corporate formalities, which include holding shareholder meetings, issuing stocks, filing annual reports and paying annual fees. Both entities create by-laws which define how they operate. Tax-wise, the S corp has an advantage over a C corp in that no double taxation exists. With a C corp, both the company and shareholders pay taxes. An S corp is a pass-through entity and the income passes directly to shareholders who pay taxes and the corporation itself pays no taxes. S corp shareholders also have the benefit of being business employees who can draw salaries. They can also receive company dividends. Through an S corp, reasonable characterizations of income and dividends allow owners to reduce their self-employment taxes. Business owners also can transfer ownership interests without triggering tax consequences or having to comply with complex accounting requirements.

By working with an attorney who understands the nuances of Florida business law, you can ensure you make sound, informed decisions.

Westchase Law, P.A. works with businesses in a wide scope of industries.